January 1, 2015, Dawn Corporation exchanges 12,000 shares of its common stock for an 80% interest in Mercer Company. The stock issued has a par value of $10 per share and a fair value of $25 per share. On the date of purchase, Mercer has the following balance sheet:
Common stock ($2 par). . . . . . . . . . . . . . . . . . . . $ 20,000
Paid-in capital in excess of par . . . . . . . . . . . . . . 50,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . 100,000
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . $170,000
On the purchase date, Mercer has equipment with an 8-year remaining life that is undervalued by $100,000. Any remaining excess cost is attributed to goodwill.
There are intercompany merchandise sales. During 2016, Dawn sells $20,000 of merchandise to Mercer. Mercer sells $30,000 of merchandise to Dawn. Mercer has $2,000 of Dawn goods in its beginning inventory and $4,200 of Dawn goods in its ending inventory. Dawn has $2,500 of Mercer goods in its beginning inventory and $3,000 of Mercer goods in its ending inventory. Dawn's gross profit rate is 40%; Mercer's is 25%.
On July 1, 2015, Dawn sells a machine to Mercer for $90,000. The book value of the machine on Dawn's books is $50,000 at the time of the sale. The machine has a 5-year remaining life. Depreciation on the machine is included in expenses.
The consolidated group meets the requirements of an affiliated group under the tax law and files a consolidated tax return. The corporate tax rate is 30%. The original purchase is not structured as a nontaxable exchange.
Dawn uses the cost method to record its investment in Mercer. Since Mercer has never paid dividends, Dawn has not recorded any income on its investment in Mercer. The two companies prepare the following income statements for 2016:

Required
Prepare a determination and distribution of excess schedule. Prepare the 2016 consolidated net income in schedule form. Include eliminations and adjustments. Provide income distribution schedules to allocate consolidated net income (after tax) to the controlling and non-controlling interests.

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Dawn Mercer Sales Less cost of goods sold Gross profit Less expenses 800,000 375,000 $ 200,000 $225,000 80,000 185,000