On January 1, 2012, Patrick Company purchased 100 percent of the outstanding voting stock of Shawn, Inc., for $1,000,000 in cash and other consideration. At the purchase date, Shawn had common stock of $500,000 and retained earnings of $185,000. Patrick attributed the excess of acquisition-date fair value over Shawn's book value to a trade name with a 25-year life. Patrick uses the equity method to account for its investment in Shawn.

During the next two years, Shawn reported the following:

Shawn sells inventory to Patrick after a markup based on a gross profit rate. At the end of 2012 and 2013, 30 percent of the current year purchases remain in Patrick's inventory.
Required
Create an Excel spreadsheet that computes the following:
1. Equity method balance in Patrick's Investment in Shawn, Inc., account as of December 31, 2013.
2. Worksheet adjustments for the December 31, 2013, consolidation of Patrick and Shawn.
Formulate your solution so that Shawn's gross profit rate on sales to Patrick is treated as a variable.

Transcribed Image Text:

Income $78,000 85,000 Dividends $25,000 27,000 Inventory Transfers to Patrick at Transfer Price $190,000 210,000 2012 2013