Question:
Refer to the preceding facts for Purples acquisition of Salmon common stock. On January 1, 2013, Salmon held merchandise sold to it from Purple for $12,000. This beginning inventory had an applicable gross profit of 35%. During 2013, Purple sold merchandise to Salmon for $55,000. On December 31, 2013, Salmon held $10,000 of this merchandise in its inventory. This
ending inventory had an applicable gross profit of 40%. Salmon owed Purple $7,500 on December 31 as a result of this intercompany sale. Purple held $16,000 worth of merchandise in its January 1, 2013, inventory from sales from Salmon. This beginning inventory had an applicable gross profit of 30%. During 2013, Salmon sold merchandise to Purple for $35,000. Purple held $20,000 of this inventory at the end of the year. This
ending inventory had an applicable gross profit of 35%. Purple owed Salmon $5,000 on December 31 as a result of this intercompany sale. On January 1, 2011, Purple sold equipment to Salmon at a profit of $40,000. Depreciation on this equipment is computed over an 8-year life using the straight-line method. On January 1, 2012, Salmon sold equipment with a book value of $30,000 to Purple for $54,000. This equipment has a 6-year life and is depreciated using the straight-line method. Purple and Salmon had the following trial balances on December 31, 2013:
Required
1. Prepare a value analysis and a determination and distribution of excess schedule for the investment in Salmon.
2. Complete a consolidated worksheet for Purple Company and its subsidiary Salmon Company as of December 31, 2013. Prepare supporting amortization and income distribution schedules.
On January 1, 2011, Purple Company acquired Salmon Company. Purple paid $300,000 for 80% of Salmons common stock. On the date of acquisition, Salmon had the following balance sheet:
Buildings, which have a 20-year life, are understated by $100,000. Equipment, which has a 5-year life, is understated by $50,000. Any remaining excess is goodwill. Purple uses the simple equity method to account for its investment in Salmon.
Ending Inventory
The ending inventory is the amount of inventory that a business is required to present on its balance sheet. It can be calculated using the ending inventory formula Ending Inventory Formula =...
Distribution
The word "distribution" has several meanings in the financial world, most of them pertaining to the payment of assets from a fund, account, or individual security to an investor or beneficiary. Retirement account distributions are among the most...
Transcribed Image Text:
Land. Accumulated Depreciation 3 Accumulated Depreciation... ..25,000) 50,000 100,000 (100,000) (10,000) Paid-In Capital in Excess of Par Retained Earnings, January 1, 2013. ...(510,000) 169,500 Cost of Goods Sold Other Expenses nse- Salmon Company Balance Sheet January 1, 2011 Assets Liabilities and Equity 60,000 200,000 10,000 90,000 60,000 50,000 Accounts payable Accounts receivable Inventory.. Land 60,000 100,000 150,000 (50,000) 100,000 [30,000) 40,000 .$420,000 Bonds payable Common slock ($1 parl Paid-in capital in excess of par Retained earnings .. Accumulated depreciation Equipment. Accumulated depreciation Total assets... Total liabilities and equity $420,000