Equity method and consolidated financial statements. The first two columns of Exhibit 13.15 present information from the accounting records of Peak Company and Valley Company on December 31 of the current year. Peak Company acquired 100% of the common stock of Valley Company on January 1 of this year for $50,000 cash. The shareholders' equity of Valley Company on January 1 comprised $5,000 of common stock and $45,000 of retained earnings. Valley Company earned $10,000 and declared and paid dividends of $4.000 during the current year. Advances from Peak Company to Valley Company on December 31 total $8,000; Peak includes the advances in its Accounts Receivable; Valley shows the advances in its Accounts Payable.

a. Give the journal entries that Peak Company made on its books on January 1 of the current year to acquire the common stock of Valley Company and to apply the equity method during the current year.
b. Insert the amounts in the Consolidated column of Exhibit 13.15 for a consolidated balance sheet and a consolidated income statement for Peak Company and Valley Company.
c. Assume for parts c. d. and e that Peak Company paid $70,000, instead of $50,000, for all of the common stock of Valley Company. The fair values of Valley Company's recorded assets and liabilities equaled their carrying values. Valley Company holds a patent that resulted from the firm's internal research and development efforts. The patent has a zero carrying value, a $20.000 fair value, arid a l0-year remaining life on the date of the acquisition. Give the journal entries that Peak Company would make on its books on January 1 of the current year to acquire the common stock of Valley Company and to apply the equity method during the year. Peak Company included amortization of the patent in Selling and Administrative Expenses The amortization of the patent is a permanent difference between book income and taxable income. That is, for financial reporting, Peak will amortize the cost of the patent to expense, but for tax reporting, none of that cost is ever a deduction. If Peak were to sell the patent, it would compute taxable gain or loss on sale as proceeds less the fair value allocated to the patent at the time of acquisition. Thus, income tax expense will not change as a result of the patent amortization.
d. Exhibit 13.16 presents information for Peak Company and Valley Company at the end of the current year assuming that Peak Company paid $70,000 for all of the common stock of Valley Company on January 1 of the current year. Enter the amounts indicated by a question mark (?) on the books of Peak Company as of December 31 of the current year.

e. Insert the amounts in the Consolidated column of Exhibit 13.16 for a consolidated balance sheet and a consolidated income statement for Peak Company and ValleyCompany.

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Peak Company and Valley Company Information from the Accounting Records on EXHIBIT 13.15 December 31 of the Current Year Acquisition Cost is $50,000 (Problem 30) Peak Company Valley Company Consolidated ASSETS $ 3,000 $ 6,000 Cash. Accounts Receivable . 20,000 42,000 Investment in Valley Company (using equity method) 56,000 Other Assets 85,000 $111,000 123,000 $ 254,000 Total Assets LIABILITIES AND SHAREHOLDERS EQUITY $ 80,000 $ 25,000 Accounts Payable . Bonds Payable Common Stack.. Retained Earnings. Total Liabilities and Shareholders' Equity. 50,000 30,000 10,000 5,000 114,000 S 254,000 51,000 $111,000 Sales Revenue.. Equity in Earnings of Valley Company Cost of Goods Sold.... $ 400,000 $125,000 10,000 (320,000) (44,000) (12,000) $ 34,000 (90,000) Selling and Administrative Expense Income Tax Expense Net Income. (20,000) (5,000) $ 10,000