On January 1, 2023, Pulaski, Incorporated, acquired a 60 percent interest in the common stock of Sheridan, Incorporated, for $392,400. Sheridan's book value on that date consisted of common stock of $100,000 and retained earnings of $231,900. Also, the acquisition-date fair value of the 40 percent noncontrolling interest was $261,600. The subsidiary held patents (with a 10-year remaining life) that were undervalued within the company's accounting records by $81,700 and also had unpatented technology (15-year estimated remaining life) undervalued by $57,000. Any remaining excess acquisition-date fair value was assigned to an indefinite-lived trade name. Since acquisition, Pulaski has applied the equity method to its Investment in Sheridan account. At year-end, there are no intra-entity payables or receivables.

Intra-entity inventory sales between the two companies have been made as follows:

Year	Cost to Pulaski	Transfer Price to Sheridan	Ending Balance (at transfer price)
2023	$ 130,800	$ 163,500	$ 54,500
2024	113,400	151,200	37,800

The individual financial statements for these two companies as of December 31, 2024, and the year then ended follow:

Items	Pulaski, Incorporated	Sheridan, Incorporated
Sales	$ (741,000)	$ (377,000)
Cost of goods sold	487,000	230,200
Operating expenses	199,020	78,400
Equity in earnings in Sheridan	(35,308)	0
Net income	$ (90,288)	$ (68,400)
Retained earnings, 1/1/24	$ (792,000)	$ (283,800)
Net income	(90,288)	(68,400)
Dividends declared	49,100	19,600
Retained earnings, 12/31/24	$ (833,188)	$ (332,600)
Cash and receivables	$ 283,600	$ 151,400
Inventory	266,400	132,000
Investment in Sheridan	429,006	0
Buildings (net)	347,000	206,500
Equipment (net)	247,700	90,100
Patents (net)	0	24,800
Total assets	$ 1,573,706	$ 604,800
Liabilities	$ (440,518)	$ (172,200)
Common stock	(300,000)	(100,000)
Retained earnings, 12/31/24	(833,188)	(332,600)
Total liabilities and equities	$ (1,573,706)	$ (604,800)

Note: Parentheses indicate a credit balance.

Required:

Show how Pulaski determined the $429,006 Investment in Sheridan account balance. Assume that Pulaski defers 100 percent of downstream intra-entity profits against its share of Sheridan's income.

Prepare an consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2024.

Answer rating: 100% (QA)

To determine the balance of the Investment in Sheridan account Pulaski uses the equity method to account for its investment in Sheridan Under the equity method Pulaski recognizes its share of Sheridan... View the full answer