Question
On January 1, 2023, Pulaski, Incorporated, acquired a 60 percent interest in the common stock of Sheridan, Incorporated, for $334,800. Sheridan's book value on that
On January 1, 2023, Pulaski, Incorporated, acquired a 60 percent interest in the common stock of Sheridan, Incorporated, for $334,800. Sheridan's book value on that date consisted of common stock of $100,000 and retained earnings of $197,900. Also, the acquisition-date fair value of the 40 percent noncontrolling interest was $223,200. The subsidiary held patents (with a 10-year remaining life) that were undervalued within the company's accounting records by $86,200 and also had unpatented technology (15-year estimated remaining life) undervalued by $62,400. Any remaining excess acquisition-date fair value was assigned to an indefinite-lived trade name. Since acquisition, Pulaski has applied the equity method to its Investment in Sheridan account. At year-end, there are no intra-entity payables or receivables.
Intra-entity inventory sales between the two companies have been made as follows:
Year | Cost to Pulaski | Transfer Price to Sheridan | Ending Balance (at transfer price) |
---|---|---|---|
2023 | $ 137,700 | $ 172,125 | $ 57,375 |
2024 | 113,400 | 151,200 | 37,800 |
The individual financial statements for these two companies as of December 31, 2024, and the year then ended follow:
Items | Pulaski, Incorporated | Sheridan, Incorporated |
---|---|---|
Sales | $ (757,000) | $ (398,000) |
Cost of goods sold | 497,500 | 242,800 |
Operating expenses | 201,705 | 82,600 |
Equity in earnings in Sheridan | (37,917) | 0 |
Net income | $ (95,712) | $ (72,600) |
Retained earnings, 1/1/24 | $ (838,200) | $ (285,800) |
Net income | (95,712) | (72,600) |
Dividends declared | 50,900 | 21,100 |
Retained earnings, 12/31/24 | $ (883,012) | $ (337,300) |
Cash and receivables | $ 300,500 | $ 153,600 |
Inventory | 282,300 | 133,800 |
Investment in Sheridan | 393,654 | 0 |
Buildings (net) | 366,000 | 208,300 |
Equipment (net) | 261,100 | 91,800 |
Patents (net) | 0 | 26,600 |
Total assets | $ 1,603,554 | $ 614,100 |
Liabilities | $ (420,542) | $ (176,800) |
Common stock | (300,000) | (100,000) |
Retained earnings, 12/31/24 | (883,012) | (337,300) |
Total liabilities and equities | $ (1,603,554) | $ (614,100) |
Note: Parentheses indicate a credit balance.
Required:
Show how Pulaski determined the $393,654 Investment in Sheridan account balance. Assume that Pulaski defers 100 percent of downstream intra-entity profits against its share of Sheridans income.
Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2024.
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