On January 1, 2015, Parson Company acquires an 80% Interest in Solar Company for $500,000. Solar had the following balance sheet on the date of acquisition: Solar Company Balance Sheet 1-Jan-15 Liabilities Accounts Payable Bonds Payable $ 70,000 $100,000 Assets Accounts Receivable $ 60,000 Inventory $ 80,000 Land $ 120,000 Buildings $ 250,000 Ace'l Depreciation $ (50,000) Equipment $ 120,000 Acc'l Depreciation $ 170,000) Equity Common Stock Paid-in excess of par Retained Earnings $ 10,000 $ 160,000 $ 170,000 Total Assets $ 510,000 Total Liab & Equity $ 510,000 a Buildings, wich have a 20-year life, are undervalued by $70,000. Equipment, which has a 5-year life, is undervalued by $50,000. Any remaining excess of cost over book value is attributable to goodwill, which has a 15-year life for tax purposes only. Parson uses the simple equity method to account for its investment in Solar. During 2016, Solar sells $30,000 worth of merchandise to Parson. As a result of these intercompany sales, Parson holds beginning inventory of $12,000 and ending inventory of $16,000 of merchandise acquired from Solar. At December 31, 2016, Parson owes Solar $6,000 from merchandise sales. Solar has a gross profit rate of 30%. On January 1, 2015, Parson sells equipment having a net book value of $50,000 to Solar for $80,000. The equipment has a 5-year useful life and is depreciated using the straight-line method. Neither company has provided for income tax. The companies qualify as an affiliated group and, thus, will file a consolidated tax return based on a 40% corporate tax rate. The original purchase is not a taxable exchange. The trial balance for December 31, 2016 for both companies is on the following page: I Cash Accounts receivable Inventory Land Investment in Solar Buildings Accumulated depreciation Equipment Accumulated depreciation Accounts payable Bond payable Deferred tax liability Common stock - Solar Paid in excess - Solar Retained eamings - Solar Common stock - Parson Paid in excess - Parson Retained eamings- Parson Sales Cost of goods sold Depr. expense building Depreciation exp. -equipment Other expenses Interest expense Subsidiary income Dividends declared - Solar Dividends declared - Parson Totals Trial Balance Parson Solar 46,080 24.000 150.600 90,000 105,000 90,000 100,000 150,000 567,200 800,000 250,000 (250,000 (70,000 210,000 120,000 (115.000) (90,000 (70,000) (40,000) 0 (100.000 (2.880) (10,000) (160,000 (222.000 (100,000) (600,000) (622.400) (890,000) (350,000 480,000 220,000 30,000 10,000 25,000 10,000 150,000 60,000 8,000 (33,600) 10,000 20.000 0 0 Required: 1. Prepare a determination and distribution of excess schedule and all other supporting schedules 2. Prepare the required elimination entries with explanations for the purpose of the entry. 3. Prepare all necessary schedules and the worksheet. 4. Prepare the consolidated income statement and balance sheet (on a separate sheet). Due Tuesday, December 7, before 10:20am. On January 1, 2015, Parson Company acquires an 80% Interest in Solar Company for $500,000. Solar had the following balance sheet on the date of acquisition: Solar Company Balance Sheet 1-Jan-15 Liabilities Accounts Payable Bonds Payable $ 70,000 $100,000 Assets Accounts Receivable $ 60,000 Inventory $ 80,000 Land $ 120,000 Buildings $ 250,000 Ace'l Depreciation $ (50,000) Equipment $ 120,000 Acc'l Depreciation $ 170,000) Equity Common Stock Paid-in excess of par Retained Earnings $ 10,000 $ 160,000 $ 170,000 Total Assets $ 510,000 Total Liab & Equity $ 510,000 a Buildings, wich have a 20-year life, are undervalued by $70,000. Equipment, which has a 5-year life, is undervalued by $50,000. Any remaining excess of cost over book value is attributable to goodwill, which has a 15-year life for tax purposes only. Parson uses the simple equity method to account for its investment in Solar. During 2016, Solar sells $30,000 worth of merchandise to Parson. As a result of these intercompany sales, Parson holds beginning inventory of $12,000 and ending inventory of $16,000 of merchandise acquired from Solar. At December 31, 2016, Parson owes Solar $6,000 from merchandise sales. Solar has a gross profit rate of 30%. On January 1, 2015, Parson sells equipment having a net book value of $50,000 to Solar for $80,000. The equipment has a 5-year useful life and is depreciated using the straight-line method. Neither company has provided for income tax. The companies qualify as an affiliated group and, thus, will file a consolidated tax return based on a 40% corporate tax rate. The original purchase is not a taxable exchange. The trial balance for December 31, 2016 for both companies is on the following page: I Cash Accounts receivable Inventory Land Investment in Solar Buildings Accumulated depreciation Equipment Accumulated depreciation Accounts payable Bond payable Deferred tax liability Common stock - Solar Paid in excess - Solar Retained eamings - Solar Common stock - Parson Paid in excess - Parson Retained eamings- Parson Sales Cost of goods sold Depr. expense building Depreciation exp. -equipment Other expenses Interest expense Subsidiary income Dividends declared - Solar Dividends declared - Parson Totals Trial Balance Parson Solar 46,080 24.000 150.600 90,000 105,000 90,000 100,000 150,000 567,200 800,000 250,000 (250,000 (70,000 210,000 120,000 (115.000) (90,000 (70,000) (40,000) 0 (100.000 (2.880) (10,000) (160,000 (222.000 (100,000) (600,000) (622.400) (890,000) (350,000 480,000 220,000 30,000 10,000 25,000 10,000 150,000 60,000 8,000 (33,600) 10,000 20.000 0 0 Required: 1. Prepare a determination and distribution of excess schedule and all other supporting schedules 2. Prepare the required elimination entries with explanations for the purpose of the entry. 3. Prepare all necessary schedules and the worksheet. 4. Prepare the consolidated income statement and balance sheet (on a separate sheet). Due Tuesday, December 7, before 10:20am