On January 1, 2016, Pep Company acquired 80% of the common stock of Sky Company for $195,000. On this date Sky had total owners' equity of $200,000 (common stock, other paid-in capital, and retained earnings of $10,000, $90,000, and $100,000 respectively).

Any excess of cost over book value is attributable to inventory (worth $6,250 more than cost), to equipment (worth $12,500 more than book value), and to patents. FIFO is used for inventories. The equipment has a remaining life of five years and straight-line depreciation is used. The excess attributable to the patents is to be amortized over 20 years.

During 2016 and 2017, Pep has appropriately accounted for its investment in Sky using the simple equity method.

On January 1, 2017, Pep held merchandise acquired from Sky for $10,000. During 2017, Sky sold merchandise to Pep for $50,000, $20,000 of which is still held by Pep on December 31, 2017. Sky's usual gross profit on affiliated sales is 50%.

On December 31, 2016, Pep sold equipment to Sky at a gain of $10,000. During 2017, the equipment was used by Sky. Depreciation is being computed using the straight-line method, a five-year life, and no salvage value.

Required:

a.	Using the information above or on the Figure 4-6 worksheet, prepare a determination and distribution of excess schedule.
b.	Complete the Figure 4-6 worksheet

Figure 4-6
	Trial Balance		Eliminations and
	Pep	Sky	Adjustments
Statement - Accounts	Company	Company	Debit Debit		Credit
Income Statement:
Net Sales	(610,000)	(365,000)
Cost of Goods Sold	360,000	190,000
Operating Expenses	150,000	70,000
Subsidiary Income	(84,000)
Net Income	(184,000)	(105,000)
NCI Interest
Controlling interest
Retained Earnings Statement:
Balance, January 1 P Co.	(350,000)
Balance, January 1 S Co.		(150,000)
Net Income (From Above)	(184,000)	(105,000)
Dividends Declared P Co.	60,000
Dividends Declared S Co.		30,000
Balance, December 31	(474,000)	(225,000)
Consolidated Balance Sheet:
Inventory, December 31	140,000	60,000
Other Current Assets	249,000	205,000
Investment in Sub. Company	295,000
Land	140,000	100,000
Building and Equipment	400,000	200,000
Accumulated Depreciation	(150,000)	(50,000)
Current Liabilities	(150,000)	(120,000)
Bonds Payable	(100,000)	(50,000)
Other Long-Term Liabilities	(50,000)	(20,000)
Common Stock P Co.	(100,000)
Other Paid in Capital P Co.	(200,000)
Common Stock S Co.		(10,000)
Other Paid in Capital S Co.		(90,000)
Retained Earnings - 12/31	(474,000)	(225,000)
(From Above)
Total NCI
	0	0