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 11.19.1 Peak Company acquired all of the common stock of Valley Company on January I 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 Com- pany carned $10,000, then 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 Ac- counts 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) climinate the investment account and (2) eliminate intercompany receiv ables and payables.

b. Assume for this part 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. Peak Company amortizes goodwill over 10 years. The Investment in Stock of Valley Company account showed a balance of $74,000 on December 31, (You should be able to derive this $74,000 balance in the Investment account. Try doing so before peeking at the footnote below, which shows the derivation.)" Give the consolidation work sheet entry to eliminate the investment account.

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EXHIBIT 11.19 PEAK COMPANY AND VALLEY COMPANY Preclosing Trial Balances (Problem 48) DEBITS Cash Accounts Receivable Investment in Stock of Valley Company (using equity method) Other Assets Cost of Goods Sold Selling and Administrative Expenses Income Tax Expense Totals CREDITS Accounts Payable Bonds Payable. Peak Company $ 13,000 42,000 56,000 Valley Company $ 6,000 20,000 - 143.000 85,000 320,000 90,000 44,000 20,000 12,000 5,000 $630,000 $226,000 $ 80,000 50,000 Common Stock 10,000 $ 25,000 30,000 5,000 Retained Earnings 80,000 41,000 Sales Revenue 400,000 125,000 Equity in Earnings of Valley Company 10,000 - Totals $630,000 $226,000