Refer to the preceding facts for Penskes acquisition of Stock common stock. Penske uses the simple equity

Refer to the preceding facts for Penske’s acquisition of Stock common stock. Penske uses the simple equity method to account for its investment in Stock. During 2012, Stock sells $30,000 worth of merchandise to Penske. As a result of these inter-company sales, Penske holds beginning inventory of $12,000 and ending inventory of $16,000 of merchandise acquired from Stock. At December 31, 2012, Penske owes Stock $6,000 from merchandise sales. Stock has a gross profit rate of 30%.

On January 1, 2011, Penske sells equipment having a net book value of $50,000 to Stock for $90,000. The equipment has a 5-year useful life and is depreciated using the straight-line method.

Penske and Stock do not qualify as an affiliated group for tax purposes and, thus, will file separate tax returns. Assume a 40% corporate tax rate and an 80% dividends received exclusion.

On January 1, 2011, Penske Company acquires an 80% interest in Stock Company for $450,000. Stock has the following balance sheet on the date of acquisition:

Buildings, which have a 20-year life, are undervalued by $100,000. Equipment, which has a 5-year life, is undervalued by $50,000. Any remaining excess of cost over book value is attributable to goodwill.

Required
1. Prepare a value analysis and a determination and distribution of excess schedule.
2. Prepare a consolidated worksheet for the year ended December 31, 2012. Include a provision for income tax and income distribution schedules.

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Stock Company Balance Sheet January 1, 2011 Assets Liabilities and Equity Accounts receivable .-.. .。.. Inventory. ...70,000 100,000 10,000 Accounts Accumulated depreciation . Equipmenf. .. . Accumulated depreciation Goodwill 250,000 Paid-in capital in excess (50,000 of par 120,000 Retained earnings. . . . (70,000) 30,000 190,000 170,000 Total assets $540,000 Total liabilities and equity $540,000 Penske Stock Compan Compan 92,400 150,600 105,000 100,000 503,120 800,000 53,200 90,000 90,000 120,000 Inventory Land Buildings 250,000 (250,000) 70,000) 120,000 (115,000)(90,000) 30,000 (70,000 40,000) (82,640) 16,800) (100,000) 210,000 Accounts Payable Deferred Tax Liability (see note below). . . . . .. . . . (4,250) (100,000) 10,000) (600,000) 190,000) (617,683) 221,200) (350,000) 220,000 10,000 10,000 60,000 8,000 16,800 Sales Cost of Goods Sold. .. . (890,000) 480,000 30,000 25,000 150,000 Other Expenses Provision for Income Tax (see note below Subsidiary Income 83,613 (20,160) 20,000 . . . . . . . . 10,000 Provision for income taxes (Penske): $82,000 640 $82,640 973 $83,613 Current ($205,000 x 40%) Stock dividends ($8,000 20% x 40%) . Current deferred taxes [($20, 1 60-$8,000) × 20% × 40%) . Deferred tax liability (Penske): Change in Stock retained earnings [80% x ($221,200-$170,000) × 20% × 40%) Deferred tax liability . $ 973* 3,277* $4,250