Case Study 2 - Due Week 6 On January 1, 2020, James Company purchased 100 percent of the outstanding voting stock of Nolan, Inc., for $1,000,000 in cash and other consideration. At the purchase date, Nolan had common stock of $500,000 and retained earnings of $185,000. James attributed the excess of acquisition-date fair value over Nolan's book value to a trade name with an estimated 25-year remaining useful life. James uses the equity method to account for its investment in Nolan. During the next two years, Nolan reported the following: 2020 2021 Income $78.000 85.000 Dividends Declared $25.000 27.000 Inventory Transfers to James at Transfer Price $190.000 210,000 Nolan sells inventory to James after a markup based on a gross profit rate. At the end of 2020 and 2021, 30 percent of the current year purchases remain in James's inventory Using the attached Excel template, compute the following: 1. The Equity Method balance in James' Investment in Nolan, Inc., account as of December 31, 2021 2. Worksheet adjustments for the December 31, 2021 adjustments of James and Nolan. Use the following Codes to designate the purpose of the journal entry Consolidation entries: ("G) Recognition of intra-entity beginning inventory gross profit in current period consolidated net income. Downstream sales are attributed to parent. (S) Elimination of subsidiary's stockholders' equity accounts along with recognition of the noncontrolling interest as of January 1. (A) Allocation of excess fair value over subsidiary's book value, unamortized balance as of January 1. Elimination of intra-entity income remaining after G elimination. (D) Elimination of intra-entity dividend. (E) Recognition of amortization expense for current year on excess fair value allocated to database. (P) Elimination of intraentity receivable/payable balances. (TI) Elimination of intra-entity sales/purchases balances. G) Deferral of intra-entity ending inventory gross profit from current period consolidated net income and removal of intra-entity gross profit from ending inventory. (1) Formulate your solution so that Nolan's gross profit rate on sales to James is treated as a variable. Please use 60% as GPR for Case 2. My evaluation focus on the deferred GP in the ending inventory (El Profit) A Show how each of your number are calculated. For example: 1. Entry S - RE-Nolan-Hint: Beg RE + NI - Div - Deferred GP on El 2. Entry A - Tradename - Unamortized balance as of 1/1/2021 Hint Fair value - Annual Amortization ( Need to create Fair value allocation schedule ) B. Consolidation Entries are label - *GSAIDEPTIG B D 1/1/2020 1 Fair Value Allocation 2 3 Consideration Transferred 4 Common Stock 5 Retained Earnings 6 7 Tradename 00 9 Intra-entity Inventory Transfers (upstream) 10 Sales Inventory Intra.Profit 11 2020 12 2021 13 14 Investment Account in 10 16 Cost 17 2020 Equity Earnings 18 Dividends 19 12/31/2020 Balance 20 21 2021 Equity Earnings 22 Dividends 23 12/31/2021 Balance 24 25 Equity in Nolan Company Earnings 26 27 2020 Reported Net Income 28 El Profit 29 Amortization 30 Equity Earnings 31 32 2021 Reported Net Income 33 BI Profit 34 EI Profit 35 Amortization 36 Equity Earnings 37
