Refer to the preceding facts for Penske€™s acquisition of Stock common stock. Penske accounts for its investment in Stock using the simple equity method, including income tax effects. During 2013, Stock sells $40,000 worth of merchandise to Penske. As a result of these intercompany sales, Penske holds beginning inventory of $16,000 and ending inventory of $10,000 of merchandise acquired from Stock. At December 31, 2013, Penske owes Stock $8,000 from merchandise sales. Stock has a gross profit rate of 30%.
During 2013, Penske sells $60,000 worth of merchandise to Stock. Stock holds $15,000 of this merchandise in its ending inventory. Stock owes $10,000 to Penske as a result of these inter-company sales. Penske has a gross profit rate of 40%. 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.
On January 1, 2013, Stock sells equipment to Penske at a profit of $25,000. 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.

Required
1. Prepare a value analysis and a determination and distribution of excess schedule.
2. Prepare a consolidated worksheet for the year ended December 31, 2013. Include a provision for income tax and income distribution schedules.

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Stock Company Balance Sheet January 1, 2011 Assets Liabilities and Equity Accounts receivable .-.. .。.. Inventory. ...70,000 100,000 10,000 Accounts Accumulated depreciation . Equipmenf. .. . Accumulated depreciation Goodwill 250,000 Paid-in capital in excess (50,000 of par 120,000 Retained earnings. . . . (70,000) 30,000 190,000 170,000 Total assets $540,000 Total liabilities and equity $540,000 Penske Compan Compan Cash 91,760 78,400 Inventory Land 115,000 120,000 100,000 120,000 529,680 Buildings 900,000 250,000 (290,000 80,000) 210,000 120,000 Equipmenf . 30,000 (50,000) (40,000) (64,240) 128,800 (100,000) Accounts Payable _ . Deferred Tax Liability (see note below).. . . . . (6,375) (950,000) (400,000) 550,000 250,000 10,000 10,000 75,000 8.000 (25,000) 28,800 40,000 25,000 176,000 Other Expenses... 66,365 (34,560) 20,000 0 Provision for Income Taxes (see note below) Subsidiary Income... _. . . . . . . .. ._. . . .. . . 10,000 Provision for income taxes (Penske): Current ($159,000 >< 40%) Stock dividends ($8,000 x 20% x 40%) . . . $63,600 $64,240 $66,365 defrd oaxes[I$34,560-$8 Deferred tax liability (Penske): Change in Stock retained earnings [80% x ($236,400-$170,000) x 20% x 40%) Deferred tax lability $2,125° 4,2500 $6,375