Question: Refer to the preceding facts for Penske s acquisition of Stock

Refer to the preceding facts for Penske’s acquisition of Stock common stock. Penske uses the simple equity method to account for its investment in Stock. During 2012, Stock sells $30,000 worth of merchandise to Penske. As a result of these inter-company sales, Penske holds beginning inventory of $12,000 and ending inventory of $16,000 of merchandise acquired from Stock. At December 31, 2012, Penske owes Stock $6,000 from merchandise sales. Stock has a gross profit rate of 30%.
On January 1, 2011, Penske sells equipment having a net book value of $50,000 to Stock for $90,000. The equipment has a 5-year useful life and is depreciated using the straight-line method.
Penske and Stock do not qualify as an affiliated group for tax purposes and, thus, will file separate tax returns. Assume a 40% corporate tax rate and an 80% dividends received exclusion.
On January 1, 2011, Penske Company acquires an 80% interest in Stock Company for $450,000. Stock has the following balance sheet on the date of acquisition:
Buildings, which have a 20-year life, are undervalued by $100,000. Equipment, which has a 5-year life, is undervalued by $50,000. Any remaining excess of cost over book value is attributable to goodwill.
1. Prepare a value analysis and a determination and distribution of excess schedule.
2. Prepare a consolidated worksheet for the year ended December 31, 2012. Include a provision for income tax and income distribution schedules.

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  • CreatedApril 13, 2015
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