Preparing a consolidation work sheet. (Requires coverage of Appendix 11.1.) The trial balances of Peak Company and Valley Company on December 31 of the current year appear in Exhibit 11.16.

Peak Company acquired all of the common stock of Valley Company on January 1 of this year for \(\$ 50,000\). 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. The preclosing trial balances on December 31 contain advances from Peak Company to Valley Company totaling \(\$ 8,000\); Peak includes the advances in its Accounts Receivable; Valley shows the advances in its Accounts Payable.

a. Prepare a consolidation work sheet for Peak Company and Valley Company for the current year. The adjustments and elimination columns should contain entries

to (1) eliminate the investment account and (2) eliminate intercompany receivables and payables.

b. Assume for parts b and c that Peak Company paid \(\$ 70,000\), instead of \(\$ 50,000\), for all of the common stock of Valley Company. The market values of Valley Company's recorded assets and liabilities equaled their book values. Valley Company holds a patent that resulted from the firm's internal research and development efforts. The patent has a zero book value, a \(\$ 20,000\) market value, and a 10 year remaining life on the date of the acquisition. Compute the balance in the Investment in Stock of Valley Company on Peak Company's books at the end of the current year.

c. Give the consolidation work-sheet entry to eliminate the investment account at the end of the current year.

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PEAK COMPANY AND VALLEY COMPANY EXHIBIT 11.16 Preclosing Trial Balances (Problem 48) Peak Company DEBITS Cash $13,000 Valley Company $ 6,000 Accounts Receivable 42,000 20.000 Investment In Stock of Valley Company (using equity method) 56,000 Other Assets. 143,000 85,000 Cost of Goods Sold 320,000 90,000 Selling and Administrative Expenses 44,000 20,000 Income Tax Expense 12,000 5,000 Totals $630,000 $226,000 CREDITS Accounts Payable $ 80,000 Bonds Payable.. Common Stock Retained Earnings 50,000 10,000 $ 25,000 30,000 5.000 80,000 41.000 Sales Revenue 400,000 125,000 Equity in Earnings of Valley Company 10,000 Totals.. $630,000 $226,000