On January 1, 2015, Paro Company purchases 80% of the common stock of Solar Company for $320,000. On this date, Solar has common stock, other paid-in capital in excess of par, and retained earnings of $50,000, $100,000, and $150,000, respectively. Net income and dividends for two years for Solar Company are as follows:

On January 1, 2015, the only undervalued tangible assets of Solar are inventory and the building. Inventory, for which FIFO is used, is worth $10,000 more than cost. The inventory is sold in 2015. The building, which is worth $30,000 more than book value, has a remaining life of10 years, and straight-line depreciation is used. The remaining excess of cost over book value is attributable to goodwill.

The trial balances for Paro and Solar are as follows:

Required

1. Prepare a value analysis and a determination and distribution of excess schedule.

2. Paro Company carries the investment in Solar Company under the sophisticated equity method. In general journal form, record the entries that would be made to apply the equity method in 2015 and 2016.

3. Compute the balance that should appear in Investment in Solar Company and in Subsidiary Income on December 31, 2016 (the second year). Fill in these amounts on Paro Company?s trial balance for 2016.

4. Complete a worksheet for consolidated financial statements for 2016. Include columns for eliminations and adjustments, consolidated income, NCI, controlling retained earnings, and consolidated balance sheet.

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Net income Dividends 2015 2016 $60,000 $90,000 20,000 30,000 Inventory, December 31 Other Current Assets Investment in Solar Company Land Buildingsand Equipment Accumulated Depreciation Goodwill Other Intangibles Current Liabilities Bonds Payable Other Long-Term Liabilities Common Stock Paro Company. Other Paid-In Capital in Excess of Par-Paro Company Retained Earnings-Paro Company Paro Company 100,000 136,000 Note 1 50,000 350,000 (100,000) 20,000 (120,000) (200,000) (200,000) (100,000) (203,600) Solar Company 50,000 180,000 50,000 320,000 (60,000) (40,000) (100,000) Common Stock-Solar Company Other Paid-In Capital in Excess of Par-Solar Company Retained Earnings-Solar Company Net Sales Cost of Goods Sold Operating Expenses Subsidiary Income Dividends Declared-Paro Company Dividends Declared-Solar Company Note 1: To be calculated (520,000) 300,000 120,000 Note 1 50,000 (50,000) (100,000) (190,000) (450,000) 260,000 100,000 30,000 Net income Dividends 2015 2016 $60,000 $90,000 20,000 30,000 Inventory, December 31 Other Current Assets Investment in Solar Company Land Buildingsand Equipment Accumulated Depreciation Goodwill Other Intangibles Current Liabilities Bonds Payable Other Long-Term Liabilities Common Stock Paro Company. Other Paid-In Capital in Excess of Par-Paro Company Retained Earnings-Paro Company Paro Company 100,000 136,000 Note 1 50,000 350,000 (100,000) 20,000 (120,000) (200,000) (200,000) (100,000) (203,600) Solar Company 50,000 180,000 50,000 320,000 (60,000) (40,000) (100,000) Common Stock-Solar Company Other Paid-In Capital in Excess of Par-Solar Company Retained Earnings-Solar Company Net Sales Cost of Goods Sold Operating Expenses Subsidiary Income Dividends Declared-Paro Company Dividends Declared-Solar Company Note 1: To be calculated (520,000) 300,000 120,000 Note 1 50,000 (50,000) (100,000) (190,000) (450,000) 260,000 100,000 30,000

Answer rating: 100% (QA)

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