Problem 6-11 (LO 4) Worksheet, separate tax, simple equity, inventory, fixed asset sale, analyze price. Refer to the preceding facts for Penstar’s acquisition of Solar common stock. Penstar uses the simple equity method to account for its investment in Solar. During 20X2, Solar sold $30,000 worth of merchandise to Penstar. As a result of these intercompany sales, Penstar held beginning inventory of $12,000 and ending inventory of $16,000 of merchandise acquired from Solar. At December 31, 20X2, Penstar owed Solar $6,000 from merchandise sales.

Solar has a gross profit rate of 30%.

On January 1, 20X1, Penstar sold equipment having a net book value of $50,000 to Solar for $90,000. The equipment has a 5-year useful life and is depreciated using the straight-line method.

Penstar and Solar 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 December 31, 20X2, Penstar and Solar had the following trial balances: