Push Down Accounting On January 1, 2002, Push Company purchased an 80% interest in the capital stock of Down Company for $820,000. At that time, Down Company had capital stock of $500,000 and retained earnings of $100,000. Differences between the fair value and the book value of identifiable assets of Down Company were as follows: LO2 Fair Value in Excess of Book Value Equipment $ 125,000 Land 62,500 Inventory 37,500 The book values of all other assets and liabilities of Down Company were equal to their fair values on January 1, 2002. The equipment had a remaining life of five years on January I, 2002; the inventory was sold in 2002. Down Company revalued its assets on January 2, 2002.
New values were allocated on the basis of the proportional interest acquired by Push Company.
Financial data for 2004 are presented here:
Push Company Down Company Sales $ 1,050,000 $ 400,000 Dividend Income 40,000 0 Total Revenue 1,090,000 400,000 Cost of Goods Sold 850,000 180,000 Depreciation Expense 35,000 45,000 Other Expenses 65,000 49,000 Total Cost and Expense 950,000 274,000 Net Income $ 140,000 $ 126,000 1/1 Retained Earnings $ 480,000 $ 122,000 Net Income 140,000 126,000 Dividends Declared (100,000) (50,000)
12/31 Retained Earnings $ 520,000 $ 198,000 Cash $ 80,000 $ 50,000 Accounts Receivable 250,000 170,000 Inventory 230,000 150,000 Investment in Down Company 820,000 Land —)0— 350,000 Goodwill —0— 148,000 Plant and Equipment 350,000 290,000 Total Assets $ 1,730,000 $1,158,000 Accounts Payable $ 160,000 $ 100,000 Notes Payable 50,000 20,000 Capital Stock 1,000,000 500,000 Revaluation Capital 340,000 Retained Earnings 520,000 198,000 Total Liabilities and Equity $ 1,730,000 $1,158,000_ Required:
A. In general journal form, prepare the entry made by Down Company on January 2, 2002, to record the effect of the pushed down values implied by the purchase of its stock by Push Company assuming that values were allocated on the basis of the proportional interest acquired by Push Company.
B. Prepare a consolidated financial statements workpaper for the year ended December 31, 2004.
C. How would the consolidated balances in the workpaper prepared in requirement B compare with those prepared in the consolidated statements without proportional pushdown?