$1.$ On January $1,2018,$ Paul Company purchased $80\%$ of the common stock of Smith Company for $$300,000.$ On this date Smith had total owners' equity of $$350,000.$ Any excess of cost over book value is attributed to a patent, to be amortized over $10$ years.

$$ During $2018,$ Paul has accounted for its investment in Smith using the simple equity method.

$$ During $2018,$ Paul sold merchandise to Smith for $$50,000,$ of which $$10,000$ is held by Smith on December $31,2018.$ Paul's gross profit on sales is $40\%.$

$$ During $2018,$ Smith sold some land to Paul at a gain of $$10,000.$ Paul still holds the land at year end.

$$ Paul and Smith qualify as an affiliated group for tax purposes and thus will file a consolidated tax return. Assume a $30\%$ corporate income tax rate.

Required:

$$ Complete the Determination and Distribution of Excess schedule, income distribution schedules $($with tax schedule$),$ and any other necessary schedules.

$$ Prepare the elimination entries in journal form.

$$ Complete the worksheet for consolidated financial statements for the year ended December $31,2018.$

$$ Prepare the formal financial statements $($Income Statement and Balance Sheet$)$ at December $31,2018.$