Problem 4A-2 (LO 2, 3, 7) Vertical worksheet, 80%, cost, several excess distributions, merchandise, equipment sales. (This is similar to Problem 4-11; it uses the simple equity method and vertical worksheet format.) On January 1, 20X1, Peanut Company acquired 80% of the common stock of Sam Company for $200,000. On this date, Sam had total owners’

equity of $200,000, which included retained earnings of $100,000. During 20X1 and 20X2, Peanut has accounted for its investment in Sam using the simple equity method.

Any excess of cost over book value is attributable to inventory (worth $12,500 more than cost), to equipment (worth $25,000 more than book value), and to goodwill. FIFO is used for inventories. The equipment has a remaining life of 4 years, and straight-line depreciation is used. Any remaining excess is attributed to goodwill.

On January 1, 20X2, Peanut held merchandise acquired from Sam for $20,000. During 20X2, Sam sold merchandise to Peanut for $40,000, $10,000 of which is still held by Peanut on December 31, 20X2. Sam’s usual gross profit is 50%.

On December 31, 20X1, Peanut sold equipment to Sam at a gain of $15,000. During 20X2, the equipment was used by Sam. Depreciation is being computed using the straight-line method, a 5-year life, and no salvage value.