1 On January 1,2018, Plymouth Corp. purchased 100.00% of the net assets of Shelby Corp. for $253,841. The write-up of the Buildings and Equipment from book value to fair market value amounted to 55.00% of the total differential. The write-up of the Land from book value to fair market value amounted to 10.00% of the total differential. The remaining 35.00% of the total differential is attributable to Goodwill. The remaining useful life of the Buildings and Equipment is assumed to be 10 years. Goodwill is impaired at the end of 2018 and 2019 and must be written down, each year, by 15.00% of its original (initial) value. The company uses the equity method approach to account for the goodwill impairment. A complete set of financial statements for fiscal years 2018 and 2019 for Plymouth Corp. is located in Exhibit 1. A complete set of financial statements for fiscal years 2018 and 2019 for Shelby Corp. is located in Exhibit 2. 1) Based on the purchase price, calculate the total differential (in dollars), as well as the differential (in dollars) applied to: i) Buildings and Equipment, i) Land and iii) Goodwill. (SHOW ALL WORK IN THE CALCULATION). 2) For fiscal year 2018, provide ALL journal entries (and t-accounts) used by the parent company to account for its investment in the subsidiary using the equity method. 3) For fiscal year 2018 provide ALL eliminating entries (and l-accounts) necessary to create consolidated financial statements. 4) For fiscal year 2018, create the consolidated financial statements using the 3-step worksheet. 5) For fiscal year 2019, provide ALL journal entries (and t-accounts) used by the parent company to account for its investment in the subsidiary using the equity method. 6) For fiscal year 2019 provide ALL eliminating entries (and t-accounts) necessary to create consolidated financial statements. 7) For fiscal year 2019, create the consolidated financial statements using the 3-step worksheet. Exhibit 1 EXAM NO. 30 INCOME STATEMENT Sales CGS Deprec and Amort Other Expenses Company Net Income Income from Subsidiary (Shelby) Net Income STATEMENT OF RETAINED EARNINGS Retained Earnings 1/1/X7 Net Income (from Above) Dividends Declared Retained Earnings 12/31/X7 BALANCE SHEET Cash Plymouth Plymouth 12/31/18 12/31/19 $ 932,750 $1,026,025 $ 666,250 $ 732,875 $ 33,313 $ 33,313 $ 99.937 $ 109,931 $ 133,250 $ 149,906 $ 74,149 $ 81,944 $ 207,399 $ 231,850 $ 290,000 $ 430,774 $ 207,399 $ 231,850 $ 66,625 $ 115,925 $ 430,774 $ 546,699 AR Inventory Land Build&Equip-HC Acc Dep Build&Equip-Net Investment in Subsidiary (Sanchez) Goodwill Differential Total Assets AP Bonds Payable Total Liabilities Shareholders Equity Common Stock Retained Earnings (from above) Total Shareholders Equity TL+TSE Balance $ 339,384 $ 418,457 $ 93,275 $102,603 $ 233,188 $256,506 $ 106,600 $106,600 $ 666,250 $ 666,250 $ 163.313 $ 196,625 $ 502,937 $ 469,625 $ 301,340 $348,186 $ $ $ $ $1,701,976 $1,576,724 S 93,275 $102,603 $ 519,675 $ 519,675 $ 612,950 $ 622,277 $ 533,000 $ 533,000 430,774 $ 546,699 $ $ 963,774 $1,079,699 $1,576,724 $1,701,976 $ $ Exhibit 2 EXAM NO. 30 INCOME STATEMENT Sales Income from Subsidiary Total Sales CGS Deprec and Amort Other Expenses Net Income STATEMENT OF RETAINED EARNINGS Retained Earnings (BOY) Shelby 12/31/18 Shelby 12/31/19 $ 533,000 $ 559,650 $ $ $ 533,000 $ 559,650 $ 333,125 $ 346,983. $ 19,988 $ 19,988 $ 99.937 $ 104,934 $ 79,950 $ 87,745 $ 133,250 $ 186,550 Net Income (from Above) $ 79,950 $ 87,745 Dividends Declared $ 26.650 $ 35,098 Retained Earnings (EOY) $ 186,550 $ 239,197 BALANCE SHEET Cash $ 33,313 $ 62,974 AR $ 73,287 $ 83,947 Inventory Land $ 133,250 $167,895 Build&Equip-HC Acc Dep Build&Equip-Net Total Assets AP Bonds Payable Total Liabilities Shareholders Equity Common Stock Retained Earnings (from above) Total Shareholders Equity TL+TSE Balance $ 26,650 $ 26,650 $ 199,875 $ 199,875 99,937 $ 119,925 $ $ 99,937 $ 79,950 $ 366,438 $ 421,416 $ 46,637 $ 48,969 $ 66.625 $ 66,625 $ 113,263 $ 115,594 $ 66,625 $ 66,625 $ 186.550 $239,197 $ 253,175 $ 305,822 $ 366,438 $ 421,416 $ - $