P 7-38 Comprehensive Problem: Intercompany Transfers Rossman Corporation holds 75 percent of the common stocks of Schmid Distributors Inc., purchased on December 31, 20x1, for $2,340,000. At the date of acquisition, Schmid reported common stock with a par value of $1,000,000, additional paid-in capital of $1,350,000, and retained eamings of S620,000. The fair value of the non-controlling interest at acquisition was $780,000. The differential at acquisition was attributable to the following items: Inventory (sold in 20x2) $30,000 Land 56,000 Goodwill 64,000 Total Differential S150,000 During 20x2, Rossman sold a plot of land that it had purchased several years before to Schmid at a gain of $23,000; Schmid continues to hold the land. In 20x6, Rossman and Schmid entered into a five-year contract under which Rossman provides management consulting services to Schmid on a continuing basis; Schmid pays Rossman a fixed fee of $80,000 per year for these services. At December 31, 20x8, Schmid owed Rossman $20,000 as the final 20x8 quarterly payment under the contract On January 2, 20x8, Rossman paid $250,000 to Schmid to purchase equipment that Schmid was then carrying at $290,000. Schmid had purchased that equipment on December 27, 20x2, for $435,000. The equipment is expected to have a total 15-year life and no salvage value. The amount of the differential assigned to goodwill has not been impaired. At December 31, 20x8, trial balances for Rossman and Schmid appeared as follows: Schmid Distributors Rossman Corporation Inc. Debit Credit Debit Credit Cash $50,700 $38,000 Current Receivables 101,800 89,400 Inventory 286,000 218,900 Investment in Schmid Stock 2,974,000 Land 400,000 1,200,000 Buildings & Equipment 2,400,000 2,990,000 Cost of Goods Sold 2,193,000 525,000 Depreciation & Amortization 202,000 88,000 Other Expenses 1,381,000 227,000 Dividends Declared 50,000 20,000 Accumulated Depreciation $1,105,000 $420,000 Current Payables 86,200 76,300 Bonds Payable 1,000,000 200,000 Common Stock 100,000 1,000,000 Additional Paid-In Capital 1,272,000 1,350,000 Retained Earnings, January 1 1,474,800 1.400,000 Sales 4,801,000 985,000 (continued) Other Income or Loss Income from Schmid Total 90,000 35,000 109,500 $10,038,500 $10,038,500 $5,431,300 $5431,300 As of December 31, 20x8, Schmid had declared but not yet paid its fourth-quarter dividend of $5,000. Both companies use straight-line depreciation and amortization. Rossman uses the fully adjusted equity method to account for its investment in Schmid. Required: a. Compute the amount of the differential as of January 1, 20x8. b. Verify the balance in Rossman's Investment in Schmid Stock account as of December 31, 20x8. c. Present all elimination entries that would appear in a three-part consolidation worksheet as of December 31, 20x8. d. Prepare and complete the three-part worksheet for the preparation of consolidated financial statements for 20x8. Equity method entries: Elimination Entries