On January 1, 2018, Paul Company purchased 80% of the common stock of Smith Company for $300,000. On this date Smith had total owners' equity of $350,000. Any excess of cost over book value is attributed to a patent, to be amortized over 10 years.

During 2018, Paul has accounted for its investment in Smith using the simple equity method.

During 2018, Paul sold merchandise to Smith for $50,000, of which $10,000 is held by Smith on December 31, 2018. Paul's gross profit on sales is 40%.

In 2018, Smith sold some land to Paul at a gain of $10,000. Paul still holds the land at year end.

Paul and Smith qualify as an affiliated group for tax purposes and thus will file a consolidated tax return. Assume a 30% corporate income tax rate.

	Trial Balance
	Parent	Sub.
Account Titles	Company	Company
Inventory, December 31	100,000	50,000
Other Current Assets	168,000	250,000
Invest in Smith Company	348,000
Land	240,000	100,000
Buildings and Equipment	300,000	200,000
Accumulated Depreciation	(80,000)	(60,000)
Current Liabilities	(150,000)	(30,000)
Long-Term Liabilities	(200,000)	(100,000)
Common Stock P Co.	(100,000)
Other Paid-in Capital P Co.	(180,000)
Retained Earnings P Co.	(320,000)
Common Stock S Co.		(100,000)
Other Paid-in Capital S Co.		(100,000)
Retained Earnings S Co.		(150,000)
Net Sales	(500,000)	(300,000)
Cost of Goods Sold	300,000	160,000
Operating Expenses	100,000	80,000
Subsidiary Income	(56,000)
Gain on Sale of Land		(10,000)
Dividends Declared P Co.	30,000
Dividends Declared S Co.		10,000

Required:

• Complete the Determination and Distribution of Excess schedule, income distribution schedules (with tax schedule), and any other necessary schedules.

Determination and Distribution of Excess Schedule
	Company Value	Parent Price	NCI
Fair Value of Subsidiary	375,000	300,000	75,000
Less Book Value of Interest Acquired
Common Stock	100,000
Paid in Excess	100,000
Retained Earnings	150,000
Total Equity	350,000	350,000	350,000
Interest Acquired	100%	80%	20%
Book Value	350,000	280,000	70,000
Excess of Cost over Book Value	25,000	20,000	5,000
Accounts Adjusted		Worksheet Distribution
Goodwill	25,000
Total	25,000
Amortization Schedule
Account Adjusted	Life	Annual Amount	Current Year	Prior Years	Total	Key
Total Amortizations
Intercompany Inventory Profit Deferral
	Parent	Parent	Parent	Sub	Sub	Sub
	Amount	%	Profit	Amount	%	Profit
Beginning	50,000
Ending	10,000
Intercompany fixed asset profit deferral
	Parent	Sub
Original profit
Year of sale
Realized in prior years
Balance, start of year
Realized in current year
Income distribution schedules:
Subsidiary:		DR	CR
Internally generated net income
Amortizations
Total before tax
Tax provision
Net income
NCI share
Controlling share of sub. Income
Subsidiary Tax Schedule	Controlling	NCI	Total
Total adjusted income
NCI share of asset adjustments
Taxable income
Tax
Net of tax share of income
Parent		DR	CR
Internally generated net income
Total before tax
Tax provision
Net income
Controlling share of subsidiary (net of tax)
Controlling interest