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Pitt Corporation manufactures household appliances. On January 1, 2017, Pitt acquires Streep Corporation, a furniture manufacturer. Pitt pays $840,000 for 70% of Streeps common stock.

Pitt Corporation manufactures household appliances. On January 1, 2017, Pitt acquires Streep Corporation, a furniture manufacturer. Pitt pays $840,000 for 70% of Streeps common stock. Streep has the following balance sheet on January 1, 2017:

Streep Corporation

Balance Sheet

January 1, 2017

Assets

Liabilities and Equity

Accounts receivable

$ 64,000

Current liabilities..

180,000

Inventory.

80,000

Bonds payable

200,000

Land

120,000

Common stock, $ 1 par

20,000

Buildings.

500,000

Paid-in capital in excess of par..

180,000

Accumulated depreciation.

(100,000)

Retained earnings

224,000

Equipment.

200,000

Accumulated depreciation.

(60,000)

Total assets..

$804,000

Total liabilities and equity

$804,000

Appraisal values for identifiable assets and liabilities are as follows:

Accounts receivable.

$ 64,000

Inventory (sold during 2017)..

76,000

Land..

300,000

Buildings (20-year life)

600,000

Equipment (5-year life)..

200,000

Current liabilities

180,000

Bonds payable (5-year life).

192,000

Any remaining excess is attributed to goodwill.

Pitt uses the simple equity method to account for its investment in Streep. Pitt and Streep have the following trial balances on December 31, 2019.

_________________________________________________Pitt_________ Streep_______

Cash..

314,000

120,000

Accounts Receivable.

180,000

110,000

Inventory

240,000

172,000

Land..

200,000

120,000

Investment in Streep

973,000

Buildings.

1,600,000

600,000

Accumulated Depreciation

(440,000)

(160,000)

Equipment.

300,000

200,000

Accumulated Depreciation

(180,000)

(144,000)

Accounts Payable

(120,000)

(204,000)

Bonds Payable

(200,000)

Common Stock..

(200,000)

(20,000)

Paid-In Capital in Excess of Par..

(1,800,000)

(180,000)

Retained Earnings, January 1, 2019

(728,000)

(364,000)

Sales.

(1,600,000)

(700,000)

Cost of Goods Sold..

900,000

420,000

Depreciation ExpenseBuildings

60,000

30,000

Depreciation ExpenseEquipment

30,000

28,000

Other Expenses.

280,000

136,000

Interest Expenses

16,000

Subsidiary Income.

(49,000)

Dividends Declared

40,000

20,000

Totals.

______0_

____ _ 0

On January 1, 2019, Streep held merchandise sold to it by Pitt for $24,000. This inventory had an applicable gross profit of 35%. During 2019, Pitt sold merchandise to Streep for $120,000. On December 31, 2019, Streep held $20,000 of this merchandise in its inventory. This ending inventory held an applicable gross profit rate of 40%. Streep owed Pitt $16,000 on December 31 as a result of this intercompany sale.

Pitt held $32,000 worth of merchandise in its January 1, 2019, inventory from sales from Streep. This beginning inventory had an applicable gross profit of 30%. During 2019, Streep sold merchandise to Pitt for $60,000. Pitt held $40,000 of this inventory at the end of the year. This ending inventory had an applicable gross profit of 35%. Pitt owed Streep $12,000 on December 31 as a result of this intercompany sale.

On January 1, 2017, Pitt sold equipment to Streep at a gain of $80,000. Depreciation on this equipment is computed over an 8-year life, using the straight-line method.

On January 1, 2018, Streep sold equipment with a book value of $60,000 to Pitt for $108,000. This equipment has a 6-year life and is depreciated using the straight-line method.

Directions:

The solution to the above problem should be typed and include: (1) a value analysis; (2) a D&D schedule; (3) an amortization schedule; (4) a schedule to prepare the intercompany sales-related entries on the worksheet; (4) worksheet entries in journal entry form; (5) the completed worksheet through the consolidated balance sheet column; (6) income distribution schedules; and (7) the consolidated financial statements (income statement, statement of retained earnings and balance sheet).

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