Intercompany transactions

Peninsula Company acquired all the outstanding stocks of Sandbar Corporation on January 1, 2011, for $15,000,000, when Sandbars stockholder equity consisted of $5,000,000 capital stock and $2,000,000 retained earnings. The price reflected a $500,000 undervaluation of Sandbars inventory (sold in 2011) and a $3,500,000 undervaluation of Sandbars buildings (remaining useful life seven years).

During 2012, Sandbar sold a piece of land that cost $1,000,000 to Peninsula for $1,500,000. Peninsula resold the land for $2,200,000 during 2015.

Peninsula sells inventory to Sandbar on a regular basis, as follows (in thousands):

	Sales to Sandbar	Cost to Peninsula	% unsold by Sandbar at year end	% unpaid by Sandbar at year end
2011	500	300	0	0
2012	1,000	600	30	50
2013	1,200	720	18	30
2014	1,000	600	25	20
2015	1,500	900	20	20

Sandbar sold equipment with a book value of $800,000 to Peninsula on January 1, 2015, for $1,600,000. This equipment had a remaining useful life of four years at the time of the sale.

Peninsula uses the equity method to account for its investment in Sandbar. The financial statements for Peninsula and Sandbar are summarized as follows (in thousands):

Combined Income and Retained earnings Statement for the year ended December 31, 2015

	Peninsula	Sandbar
Sales	26,000	11,000
Gain on land	700	0
Gain on equipment	0	800
Income from Sandbar	1,380	0
Cost of Sales	(15,000)	(5,000)
Depreciation expense	(3,700)	(2,000)
Other expenses	(4,280)	(2,800)
Net income	5,100	2,000
Add: Beginning R/E	12,250	4,000
Deduct: Dividends	(3,000)	(1,000)
R/E December 31	14,350	5,000

Balance Sheet at December 31, 2015

	Peninsula	Sandbar
Cash	1,170	500
A/R, net	2,000	1,500
Inventories	5,000	2,000
Land	4,000	1,000
Building, net	15,000	4,000
Equipment, net	10,000	4,000
Investment in Sandbar	14,280	0
Total Assets	51,450	13,000
A/P	4,100	1,000
Other liabilities	7,000	2,000
Capital Stocks	26,000	5,000
Retained earnings	14,350	5,000
Total equities	51,450	13,000

Required:

1. Determine the schedule of amortization of ECOBV for the years 2011 to 2015 (2 points). ECOBV means excess cost over book value.

2. Reconstruct the balance for the account Investment in Sandbar at December 31, 2015. Use the T-account to present the calculations (5 points).

3. Reconstruct the balance of the account Income from Sandbar for the year 2015. Use the T-account to present the calculations (3 points).

4. Prepare consolidation adjustment entries (12 points).

5. Complete a consolidated worksheet for Peninsular Company and its subsidiary Sandbar Company as of December 31, 2015. Use the format provided in the next page (You can write your own Excel worksheet, but with the indicated format) (18 points).

Accounts	Peninsula	Sandbar	Consolidattion entries-Debit	Consolidated entries-Credit	Consolidated Totals
Sales	(26,000)	(11,000)
Cost of Sales	15,000	5,000
Gain on land	(700)	0
Gain on equipment	0	(800)
Depreciation expense	3,700	2,000
Other expenses	4,280	2,800
Equity in Sandbar's income	(1,380)	0
Net income	(5,100)	(2,000)
R/E 1/1/15
Peninsula Company	(12,250)
Sandbar Company		(4,000)
Net income (above)	(5,100)	(2,000)
Dividend paid	3,000	1,000
R/E 12/31	(14,350)	(5,000)
Cash	1,170	500
A/R, net	2,000	1,500
Inventories	5,000	2,000
Land	4,000	1,000
Building, net	15,000	4,000
Equipment, net	10,000	4,000
Investment in Sandbar	14,280	0
Total Assets	51,450	13,000
A/P	(4,100)	(1,000)
Other Liabilities	(7,000)	(2,000)
Capital Stocks	(26,000)	(5,000)
R/E 12/31/2015	(14,350)	(5,000)
Total liabilities and equities	(51,450)	(13,000)

Reference: Chapter 5 from textbook Advanced Accounting by Hoyle, Schaefer, Doupnik 12th edition

ISBN: 978-0077862220