Problem 4-8 (LO 3) 80%, equity, several excess distributions, fixed asset sale by parent and subsidiary. Refer to the preceding facts for Polka’s acquisition of Salsa common stock. On January 1, 20X2, Salsa held merchandise sold to it from Polka for $20,000. During 20X2, Polka sold merchandise to Salsa for $100,000. On December 31, 20X2, Salsa held $25,000 of this merchandise in its inventory. Polka has a gross profit of 30%. Salsa owed Polka $15,000 on December 31 as a result of this intercompany sale.

On January 1, 20X1, Salsa sold equipment to Polka at a profit of $30,000. Depreciation is computed over a 6-year life, using the straight-line method. The gain shown for 20X2 is on sales to outside parties.

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.