On January 1, 2023, PondBlue Company purchased 100 percent of the outstanding voting stock of SweetWater, Inc., for $1,000,000 in cash and other consideration. At the purchase date, SweetWater had common stock of $500,000 and retained earnings of $185,000. PondBlue attributed the excess of acquisition- date fair value over Stillwater’s book value to a trade name with an estimated 25-year remaining useful life. PondBlue uses the equity method to account for its investment in SweetWater.

During the next two years, SweetWater reported the following:

SweetWater sells inventory to PondBlue after a markup based on a gross profit rate. At the end of 2023 and 2024, 30 percent of the current-year purchases remain in PondBlue’s inventory.

Required

Create an Excel spreadsheet that computes the following:1. Equity method balance in PondBlue’s Investment in SweetWater, Inc., account as of December 31, 2024.2. Worksheet adjustments for the December 31, 2024, consolidation of PondBlue and SweetWater.

Formulate your solution so that SweetWater’s gross profit rate on sales to James is treated as a variable.

Transcribed Image Text:

2023 2024 Income $78,000 85,000 Dividends Declared $25,000 27,000 Inventory Transfers to PondBlue at Transfer Price $190,000 210,000