Problem $3-2($LO $2)$ Simple equity method adjustments, consolidated worksheet.

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

Year Net income Dividends

$2015$ $$60,000$ $$20,000$

$2016$ $$90,000$ $$20,000$

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

$1.$ Using this information and the information in the following trial balances on December $31,2016,$ prepare a value analysis and determination and distribution of excess schedule:

Account Paro Company Solar Company

Inventory, December $31130,00050,000$

Other Current Assets $160,000100,000$

Investment in Solar Company $400,000$

Land $200,000320,000$

Buildings and Equipment $500,000500,000$

Accumulated Depreciation $(200,000)(80,000)$

Goodwill $40,000$

Current Liabilities $(120,000)(40,000)$

Account Paro Company Solar Company

Bonds Payable $(100,000)$

Other Long$-$Term Liabilities $(200,000)$

Common Stock $$ Paro Company $(200,000)$

Other Paid$-$In Capital in Excess of Par $$ Paro Company $(100,000)$

Retained Earnings $$ Paro Company $(214,000)$

Common Stock $$ Solar Company $(50,000)$

Other Paid$-$In Capital in Excess of Par $$ Solar Company $(100,000)$

Retained Earnings $$ Solar Company $(190,000)$

Net Sales $(520,000)(450,000)$

Cost of Goods Sold $300,000260,000$

Operating Expenses $120,000100,000$

Subsidiary Income $(72,000)$

Dividends Declared $$ Paro Company $50,000$

Dividends Declared $$ Solar Company $30,000$

Totals $00$

PROB $3-2$

$1.$ For this problem, we do NOT have sufficient information provided to enable us to begin with the Value Analysis Schedule. Instead, start by preparing the DDE Schedule assuming the Company Implied Fair Value $[100\%]$ is equal to the value that would result based on the $80\%$ of the stock of the Sub that the Parent has acquired. In other words, take the price paid by the Parent and divide it by $80\%$ to arrive at the Company Implied Value of the Sub.

$2.$ Complete the DDE being careful to use the Sub equity account balances $[$as of the acquisition date $-1/1/15]$ given in the $1$st paragraph of the problem. Do NOT use the Sub equity account balances appearing on the consolidating worksheet as they represent balances at $12/31/16[2$ years after the acquisition date$].$

$3.$ From the DDE identify the amount of Goodwill which results. Once you have that, go back up top to complete the Value Analysis Schedule using the Goodwill amount determined from your DDE.

$4.$ Before attacking the consolidating worksheet, please complete the following ADDITIONAL REQUIREMENT.

$$ Prepare all required G$/$L entries on the books of the Parent to account for its investment in the subsidiary for the following dates: $[$assume use of the simple equity method$]$

a$.$ Acquisition date $[1/1/15]$

b$.$ Entries for $2015[$beyond the acquisition date$]$

c$.$ Entries for $2016$

$5.$ Complete the consolidating worksheet $12/31/16$

$6.$ Prepare the IDS which supports the worksheet, by hand. Use our T$-$account format to complete this. Prepare IDS T$-$accounts for BOTH the Parent and the Sub. Ignore the author template for the IDS included in the electronic working papers. The author template is difficult to follow.