Palermo Inc. purchased 80 percent of the outstanding stock of Salina Ranching Company, located in Australia, on January 1, 20X3. The purchase price in Australian dollars (A$) was A$200,000, and A$40,000 of the differential was allocated to plant and equipment, which is amortized over a 10-year period. The remainder of the differential was attributable to a patent. Palermo Inc. amortizes the patent over 10 years. Salina Ranchings trial balance on December 31, 20X3, in Australian dollars is as follows:

	Debits				Credits
Cash		A$	44,100
Accounts Receivable (net)			72,000
Inventory			86,000
Plant & Equipment			240,000
Accumulated Depreciation						A$	60,000
Accounts Payable							53,800
Payable to Palermo Inc.							10,800
Interest Payable							3,000
12% Bonds Payable							100,000
Premium on Bonds							5,700
Common Stock							90,000
Retained Earnings							40,000
Sales							579,000
Cost of Goods Sold			330,000
Depreciation Expense			24,000
Operating Expenses			131,500
Interest Expense			5,700
Dividends Paid			9,000
Total		A$	942,300			A$	942,300

Assume that the U.S. dollar is the functional currency and that Palermo uses the fully adjusted equity method for accounting for its investment in Salina Ranching. A December 31, 20X3, trial balance for Palermo follows.

	Debits			Credits
Cash	$	38,000
Accounts Receivable (net)		140,000
Receivable from Salina Ranching		6,480
Inventory		128,000
Plant and Equipment		500,000
Investment in Salina Ranching		178,544
Cost of Goods Sold		600,000
Depreciation Expense		28,000
Operating Expenses		204,000
Interest Expense		2,000
Dividends Declared		50,000
Accumulated Depreciation				$	90,000
Accounts Payable					60,000
Interest Payable					2,000
Common Stock					500,000
Retained Earnings, January 1, 20X3					179,656
Sales					1,000,000
Income from Subsidiary					43,368
Total	$	1,875,024		$	1,875,024

Additional Information:

1. Salina Ranching uses average cost for cost of goods sold. Inventory increased by A$20,000 during the year. Purchases were made uniformly during 20X3. The ending inventory was acquired at the average exchange rate for the year.
2. Plant and equipment were acquired as follows:

Date	Cost
January 20X1		A$	180,000
January 1, 20X3			60,000

3. Plant and equipment are depreciated using the straight-line method and a 10-year life with no residual value.
4. The payable to Palermo is in Australian dollars. Palermos books show a receivable from Salina Ranching of $6,480.
5. The 10-year bonds were issued on July 1, 20X3, for A$106,000. The premium is amortized on a straight-line basis. The interest is paid on April 1 and October 1.
6. The dividends were declared and paid on April 1.
7. Exchange rates were as follows:

	A$		$
January 20X1	1	=	0.93
August 20X1	1	=	0.88
January 1, 20X3	1	=	0.70
April 1, 20X3	1	=	0.67
July 1, 20X3	1	=	0.64
December 31, 20X3	1	=	0.60
20X3 average	1	=	0.65

A.

1. Record the basic consolidation entry

2. Record the amortized excess value reclassification entry.

3. Record the excess value (differential) reclassification entry.

4. Record the elimination of the intercompany accounts.

B.

Prepare a three-part consolidation worksheet as of December 31, 20X3. (Values in the first two columns (the "parent" and "subsidiary" balances) that are to be deducted should be indicated with a minus sign, while all values in the "Consolidation Entries" columns should be entered as positive values. For accounts where multiple adjusting entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet.)