Problem 4-7 (LO 3) 80%, equity, several excess distributions, fixed asset sale. Refer to the preceding facts for Polka’s acquisition of Salsa common stock. On January 1, 20X2, Polka held merchandise sold to it from Salsa for $12,000. This beginning inventory had an applicable gross profit of 25%. During 20X2, Salsa sold merchandise to Polka for $75,000. On December 31, 20X2, Polka held $18,000 of this merchandise in its inventory. This ending inventory had an applicable gross profit of 30%. Polka owed Salsa $20,000 on December 31 as a result of this intercompany sale.

On January 1, 20X2, Polka sold equipment with a book value of $30,000 to Salsa for $50,000.

During 20X2, the equipment was used by Salsa. Depreciation is computed over a 5-year life, using the straight-line method.

1. Prepare a zone analysis and a determination and distribution of excess schedule for the investment in Salsa.

2. Complete a consolidated worksheet for Polka Company and its subsidiary Salsa Company as of December 31, 20X2. Prepare supporting amortization and income distribution schedules.