On January 1,2011, Praxis Corp. purchased 75.00% of the net assets of Sanchez Corp. for $178,945. The fair value of Sanchez Corp. on January 1, 2011 is estimated to be $238,594. The write-up of the Buildings and Equipment from book value to fair market value amounted to 55.00% of the total differential. The write-up of the Land from book value to fair market value amounted to 10.00% of the total differential. The remaining 35.00% of the total differential is attributable to Goodwill The remaining useful life of the Buildings and Equipment is assumed to be 10 years Goodwill is impaired at the end of 2011 and 2012 and must be written down, each year. by 15.00 % of its original (initial) value. The company uses the equity method approach to account for the goodwill impairment A complete set of financial statements for fiscal years 2011 and 2012 for Praxis Corp is located Below. A complete set of financial statements for fiscal years 2011 and 2012 for Sanchez Corp. is located below 1) Based on the purchase price, calculate the purchased differential (in dollars), as well as the purchased differential (in dollars) applied to: i) Buildings and Equipment,ii) Land and iii) Goodwill. (SHOW ALL WORK IN THE CALCULATION). 2) Based on the fair value, calculate the total differential (in dollars), as well as the total differential (in dollars) applied to: i) Buildings and Equipment, ii) Land and iii) Goodwill. (SHOW ALL WORK IN THE CALCULATION). 3) For fiscal year 2011. Provide ALL journal entries (and t-accounts) used by the parent company to account for its investment in the subsidiary using the equity method. 4) For fiscal year 2011 provide ALL eliminating entries (and t-accounts) necessary to create consolidated financial statements. 5) For fiscal year 2011, create the consolidated financial statements using the 3-step worksheet 6) For fiscal year 2012, provide ALL journal entries (and t-accounts) used by the parent company to account for its investment in the subsidiary using the equity method. 7) For fiscal year 2012 provide ALL eliminating entries (and t-accounts) necessary to create consolidated financial statements. 8) For fiscal year 2012, create the consolidated financial statements using the 3-step worksheet.

Praxis Sanchez Sanchez Sanchez 12/31/11 12/31/12 509,000 534,450 INCOME STATEMENT Praxis 12/31/11 Sales 890,750 CGS 636,250 Deprec and Amort 31,813 Other Expenses 95,438 Company Net Income 127,250 Income from Subsidiary (Sanchez) 53,415 Net Income 180,665 Praxis 12/31/12 979,825 699,875 31,813 104,981 143,156 58,998 202,155 INCOME STATEMENT Sales Income from Subsidiary Total Sales CGS Deprec and Amort Other Expenses Net Income 509,000 534,450 318,125 331,359 19,088 19,088 95,438 100,209 76,350 83,794 STATEMENT OF RETAINED EARNINGS Retained Earnings 1/1/X7 Net Income (from Above) Dividends Declared Retained Earnings 12/31/X7 290,000 180,665 63,625 407,040 407,040 202,155 101,077 508,117 STATEMENT OF RETAINED EARNINGS Retained Earnings (BOY) 127,250 178,150 Net Income (from Above) 76,350 83,794 Dividends Declared 25,450 33,518 Retained Earnings (EOY) 178,150 228,426 BALANCE SHEET Cash 400,117 AR 89,075 Inventory 222,688 Land 101,800 Build&Equip-HC 636,250 Acc Dep 161,813 Build&Equip-Net 474,438 Investment in Subsidiary (Sanchez) 213,273 Goodwill Differential Total Assets 1,501,390 476,878 97,983 244,956 101,800 636,250 193,625 442,625 247,133 Cash AR Inventory Land Build&Equip-HC Acc Dep Build&Equip-Net Total Assets BALANCE SHEET 31,813 60,138 69,988 80,168 127,250 160,335 25,450 25,450 190,875 190,875 95,438 114,525 95,438 76,350 349,938 402,441 1611375 89,075 496,275 585,350 97,983 496,275 594,258 AP Bonds Payable Total Liabilities Shareholders Equity Common Stock Retained Earnings (from above) Total Shareholders Equity TL +TSE AP 44,538 46,764 Bonds Payable 63,625 63,625 Total Liabilities 108,163 110,389 Shareholders Equity Common Stock 63,625 63,625 Retained Earnings (from above) 178,150 228,426 Total Shareholders Equity 241,775 292,051 TL +TSE 349,938 402,441 509,000 407,040 916,040 1,501,390 509,000 508,117 1,017,117 1,611,375 Praxis Sanchez Sanchez Sanchez 12/31/11 12/31/12 509,000 534,450 INCOME STATEMENT Praxis 12/31/11 Sales 890,750 CGS 636,250 Deprec and Amort 31,813 Other Expenses 95,438 Company Net Income 127,250 Income from Subsidiary (Sanchez) 53,415 Net Income 180,665 Praxis 12/31/12 979,825 699,875 31,813 104,981 143,156 58,998 202,155 INCOME STATEMENT Sales Income from Subsidiary Total Sales CGS Deprec and Amort Other Expenses Net Income 509,000 534,450 318,125 331,359 19,088 19,088 95,438 100,209 76,350 83,794 STATEMENT OF RETAINED EARNINGS Retained Earnings 1/1/X7 Net Income (from Above) Dividends Declared Retained Earnings 12/31/X7 290,000 180,665 63,625 407,040 407,040 202,155 101,077 508,117 STATEMENT OF RETAINED EARNINGS Retained Earnings (BOY) 127,250 178,150 Net Income (from Above) 76,350 83,794 Dividends Declared 25,450 33,518 Retained Earnings (EOY) 178,150 228,426 BALANCE SHEET Cash 400,117 AR 89,075 Inventory 222,688 Land 101,800 Build&Equip-HC 636,250 Acc Dep 161,813 Build&Equip-Net 474,438 Investment in Subsidiary (Sanchez) 213,273 Goodwill Differential Total Assets 1,501,390 476,878 97,983 244,956 101,800 636,250 193,625 442,625 247,133 Cash AR Inventory Land Build&Equip-HC Acc Dep Build&Equip-Net Total Assets BALANCE SHEET 31,813 60,138 69,988 80,168 127,250 160,335 25,450 25,450 190,875 190,875 95,438 114,525 95,438 76,350 349,938 402,441 1611375 89,075 496,275 585,350 97,983 496,275 594,258 AP Bonds Payable Total Liabilities Shareholders Equity Common Stock Retained Earnings (from above) Total Shareholders Equity TL +TSE AP 44,538 46,764 Bonds Payable 63,625 63,625 Total Liabilities 108,163 110,389 Shareholders Equity Common Stock 63,625 63,625 Retained Earnings (from above) 178,150 228,426 Total Shareholders Equity 241,775 292,051 TL +TSE 349,938 402,441 509,000 407,040 916,040 1,501,390 509,000 508,117 1,017,117 1,611,375