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Exercise # 2 Polar acquired Snow on January 1, 2019 at a price $300,000 in excess of book value. Of that excess, $200,000 was allocated

Exercise # 2

Polar acquired Snow on January 1, 2019 at a price $300,000 in excess of book value. Of that excess, $200,000 was allocated to an unrecorded patent with a 10-year life, with the remainder to goodwill. Polar uses the equity method to account for its investment in its subsidiary.

In 2020, Snow sold to Polar land having a book value of $90,000 for a total price of $145,000. Polar still owns the land as of 12/31/21.

Financial statements of the two companies for the year ended December 31, 2021 are presented below.

Polar

Snow

Sales revenue

$2,500,000

$525,000

Cost of goods sold

(1,750,000)

(345,000)

Gross profit

750,000

180,000

Operating expenses

(475,000)

(102,500)

Income (loss) from Snow

57,500

________

Net Income

$ 332,500

$ 77,500

Retained Earnings, 1/1/21

$ 840,700

$245,650

Net income

332,500

77,500

Dividends

( 52,900)

(8,850)

Retained Earnings, 12/31/21

$1,120,300

$314,300

Cash and receivables

$ 320,100

$178,200

Inventory

461,700

278,600

Equity investment in Snow

625,400

Property, plant & equipment (Net)

1,496,500

321,700

Total Assets

$2,903,700

$778,500

Accounts payable

$ 182,400

$ 55,900

Accrued liabilities

205,300

70,200

Notes payable

810,000

212,000

Common stock

354,200

45,000

Additional paid-in capital

231,500

81,100

Retained Earnings, 12/31/21

1,120,300

314,300

Total Liabilities and Equities

$2,903,700

$778,500

Required:

a. Prepare a schedule showing the computation of Income (loss) from subsidiary on Polar's pre-consolidation books for 2021.

b. Calculate the Equity Investment account on Polar's consolidation balance sheet at December 31, 2020.

c. Prepare the consolidation worksheet entries for 2021 in journal format.

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