Problem 3-2 (LO 2) Equity method adjustments, consolidated worksheet. On January 1, 20X1, Peres Company purchased 80% of the common stock of Soll Company for $308,000. On this date, Soll had common stock, other paid-in capital, and retained earnings of $50,000, $100,000, and $150,000, respectively. Net income and dividends for two years for Soll Company were as follows: 20X1 20X2 Net income ... .... .. .. .. . . . . . .. .. $60,000 $90,000 Dividends.. .. ... .. .... .. . . . . . .. .. 20,000 30,000 On January 1, 20X1, the only tangible assets of Soll that were undervalued were inventory and the building. Inventory, for which FIFO is used, was worth $10,000 more than cost. The inventory was sold in 20X1. The building, which is worth $25,000 more than book value, has a remaining life of 10 years, and straight-line depreciation is used. The remaining excess of cost over book value is attributable to goodwill. 1. Using this information or the information in the following trial balances, prepare a determi- nation and distribution of excess schedule. 2. Peres Company carries the investment in Soll Company under the simple equity method. In general journal form, record the entries that would be made to apply the equity method in 20X1 and 20X2. 3. Compute the balance that should appear in Investment in Soll Company under the simple equity method. In general journal form, record the entries that would be made to apply the equity method in 20X1 and 20X2. 3. Compute the balance that should appear in Investment in Soll Company and in Soll Income on December 31, 20X2 (the second year). Fill in these amounts on Peres Company?s trial balance for 20X2. 4. Complete a worksheet for consolidated ?nancial statements for 20X2. Include columns for eliminations and adjustments, consolidated income, NCI, controlling retained earnings, and balance sheet. Peres Company Soll Company Inventory, December 31 . . . . . .. .. .. . .. .... .. .. .. . .. . . . . .. .. .. . 100,000 50,000 Other Current Assets . .. . . . . . .. .. .. . .. .... .. .. .. . .. . . . . .. .. .. . 148,000 180,000 Investment in SollCompany. . . .. .... . .. .. .. .. ... . . .. .. . . .. .... . Note 1 Land. .. . .. . . . . .. .. .. . .. .... .. .. ... .. .... .. . . . . . .. .... .. .. . 50,000 50,000 Buildings and Equipment. .. . . .. .... . .. .. .. .. ... . . .. .. . . .. .... . 350,000 320,000 Accumulated Depreciation . . . . . .. .. ... .. .... .. . . . . . .. . . . . .. .. . (100,000) (60,000) Goodwill Other Intangibles.. .. ... . . .. .... .. . .. .. .. .... .. . .. . . .. .... .. . 20,000 Current Liabilities.. .. ... . . .. .... .. . .. .. .. .... .. . .. . . .. .... .. . (120,000) (40,000) Bonds Payable. ... .. .. . . . .. .... .. . .... .. .. .. .. . . . . . .. .. .. .. . (100,000) Other Long-Term Liabilities . . . .. .... . .. .. .. .. ... . . .. .. . . .. .... . (200,000) Common Stock, P Company . . . . .. .. ... .. .... .. . . . . . .. . . . . .. .. . (200,000) Other Paid-InCapital,P Company . .. . .... .. .... .. . . . . . .. . . .. .. . (100,000) Retained Earnings,PCompany. . .. ... .. .. .... .. . . . . . .. . . . . .. ... (214,000) Common Stock, S Company .. . . .. ... .. .. .... .. . . . . . .. . . . . .. ... (50,000) Other Paid-InCapital,S Company . .. . .... .. .... .. . . . . . .. . . .. .. . (100,000) RetainedEarnings, SCompany. .. ... . . .. . . . . .. . .. .. .. .... .. . .. . (190,000) Net Sales. .. . . . . .. . .. .. .. .... .. . . . . . .. . . . . . .. .... .. . . . . . .. . (520,000) (450,000) Cost ofGoods Sold . . .. .... .. .... . .. . . . . .. . . . .. .. .... .. . . . . . . 300,000 260,000 Operating Expenses . .. .... .. .... . .. . . . . .. . . . .. .. .... .. . . . . . . 120,000 100,000 SollIncome . .. . . .. . .. .... .. .. .. . .. . . . . .. . . ... .. .. .. .. . . . . . . Note 1 Dividends Declared, PCompany . ... . . . . .. . . .. . .. .... .. .. .. . .. . 50,000 Dividends Declared, SCompany . ... . . . . .. . . .. . .. .... .. .. .. . .. . 30,000 Note 1:To becalculated. Problem 3-10 (LO 3, 5) 100%, costmethod worksheet, several adjustments, third year. Refer to the preceding information for Pcraft?s acquisition of Sailair?s common stock. Assume that Pcraft paid $500,000 for 100% of Sailair common stock. Pcraft uses the cost method to account for its investment in Sailair. Pcraft and Sailair had the following trial balan- ces on December 31, 20X3: Pcraft Sailair Cash .. .. .. .. . . .. . .. .. .. .... .. . .. . . .. . . . . ... .. .. .. . . . . . . . . 80,000 60,000 Accounts Receivable ... .. .... .. .. . . . .. . . . . .. . .... .. .... .. . . . . 90,000 55,000 Inventory . .. .. . . .. . .. .. .. .... .. . .. . . .. . . . . ... .. .. .. . . . . . . . . 120,000 86,000 Land. .... .. . . . . .. . .... .. .... .. . . . . . .. . . . . . .. .... .. . . . . . .. . 100,000 60,000 Investment inSailair. ... .. .. .. .... . . . .. . . .. . . . .... .. .. .. . . . . . . 500,000 Buildings . .. .. . . .. . .. .. .. .... .. . .. . . .. . . . . ... .. .. .. . . . . . . . . 800,000 300,000 Accumulated Depreciation .. .... .. . . . . . .. . . . . . .. .... .. .... . .. (220,000) (80,000) Equipment .. .. . . . . . .. .... .. .... . .. . . . . .. . . ... .. .... .. . . . . . . 150,000 100,000 Accumulated Depreciation .. .... .. . . . . . .. . . . . . .. .... .. .... . .. (90,000) (72,000) Current Liabilities. . . . .. .... .. .... . .. . . . . .. . . ... .. .... .. . . . . . . (60,000) (102,000) Bonds Payable. . . . . . .. .... .. .... . .. . . . . .. . . ... .. .... .. . . . . . . (100,000) Common Stock . . . . ... .. .. .. .... . . . .. . . .. . . . .... .. .. .. . . . . . . (100,000) (10,000) Paid-In Capital in Excessof Par ... .. . . . . . .. . . . . . .. .... .. .... . ..(900,000) (90,000) RetainedEarnings, January 1, 20X3. . .. . . .. . . . . . . . .. .. .. .... . (315,000) (182,000) Sales .. .. .. .. . . .. . .. .. .. .... .. . .. . . .. . . . . ... .. .. .. . . . . . . . . (800,000) (350,000) Cost of GoodsSold .. ... .. .. .. . . .. . .. .. .. .. .. .. . .. . . .. . . . . .. . 450,000 210,000 Depreciation Expense?Buildings.. . . . .. .. .... .. .. . . . .. . . . . .. .30,000 15,000 Depreciation Expense?Equipment. . . . .... .. .. .. ... . . . . .. . . .. 15,000 14,000 Other Expenses . .. .. ... .. .. .. . . .. . .. .. .. .. .. .. . .. . . .. . . . . .. . 140,000 68,000 Interest Expense. .. .. ... .. .. .. . . .. . .. .. .. .. .. .. . .. . . .. . . . . .. . 8,000 Dividend Income .. .. ... .. .. .. . . .. . .. .. .. .. .. .. . .. . . .. . . . . .. . (10,000) Dividends Declared.. .. . .... .. . . . . . .. .... .. .... . .. . . . . .. . . . . . 20,000 10,000 Totals ... .. . . .. .... ... .. . . .. ... .... .. .. .. . . . . . .. .. . . .. ... 0 0 1. Prepare a zone analysis and a determination and distribution of excess schedule for the investment in Sailair. 2. Complete a consolidated worksheet for Pcraft Corporation and its subsidiary Sailair Corpo- ration as of December 31, 20X3. Prepare supporting amortization and income distribution schedules.

Prob 3-2 D&D A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 Problem 3-2 1 Common Information Ownership interest Price paid (including direct acquisition costs) Year of consolidation (1 = year of purchase) B C D E F G H Book Value Market Value Life Equity Method 80.00% 308,000 2 Acquired company's balance sheet before purchase Book Value Market Value Life Priority assets: Total priority assets - - Total liabilities 0 - - Stockholders' equity: Common stock Other paid-in capital Retained earnings Total equity 0 - - Mkt value of net assets - 0 Nonpriority accounts: Total nonpriority accounts Existing goodwill Total assets Zone Analysis Group Total Priority accounts Nonpriority accounts Ownership Portion 0 0 - Cumulative Total 0 0 0 0 Price Analysis Price = Assign to priority accounts Assign to nonpriority accounts Goodwill Extraordinary gain 308,000 0 full value Allocation Tables Priority accounts Market Total Percent Available Assign - Book Adjust - - - - - - - - - Nonpriority accounts Total Goodwill Extraordinary gain - - - Determination and Distribution of Excess Schedule Price paid for investment: Less book value interest acquired: Common stock Paid-in capital in excess of par Retained earnings Total equity Interest acquired Excess of cost over book value (debit) Allocated to: Total adjustments 80.00% Amortization - Page 1 Prob 3-2 Schedules A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 B C D E F G Annual Amount Current Year Prior Years Total Key DR CR Problem 3-2 Schedules Amortization Schedules Year of consolidation 2 Account adjustments Life Total amortizations Income distribution schedules: Subsidiary: Internally generated net income Total NCI share Controlling share Parent Internally generated net income Controlling share of subsidiary #REF! Amortizations Total Page 2 Prob 3-2 Worksheet A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 B C D E F G H I J K Consol Net Inc. NCI Control. R.E. Consol. Bal. Sht. Problem 3-2 (concluded) Year of consolidation Inventory, December 31 Other Current Assets Investment in Soll Land Buildings and Equipment Accumulated Depreciation Goodwill Other Intangibles Current Liabilities Bonds Payable Other Long-Term Liabilities Common StockPeres Other Paid-In CapitalPeres Retained EarningsPeres Common StockSoll Other Paid-In CapitalSoll Retained EarningsSoll Net Sales Cost of Goods Sold Operating Expenses Subsidiary Income Dividends DeclaredPeres Dividends DeclaredSoll Totals Consolidated net income NCI share Controlling share NCI Controlling retained earnings Totals 2 Trial Balance Peres Soll 100,000 50,000 148,000 180,000 50,000 350,000 (100,000) 20,000 (120,000) Eliminations Dr Cr 50,000 320,000 (60,000) (40,000) (100,000) (200,000) (200,000) (100,000) (214,000) (520,000) 300,000 120,000 (50,000) (100,000) (190,000) (450,000) 260,000 100,000 50,000 30,000 - Eliminations and Adjustments: Page 3 L Prob 3-10 D&D A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 B C D E F G H Book Value Market Value Life Problem 3-10 Cost Method Common Information Ownership interest Price paid (including direct acquisition costs) Year of consolidation (1 = year of purchase) 100.00% 500,000 3 Acquired company's balance sheet before purchase Book Value Market Value Life Priority accounts: Total priority assets - - Total liabilities 0 - - Stockholders' equity: Common stock Paid-in capital in excess of par Retained earnings Total equity 0 - - Mkt value of net assets - 0 Nonpriority accounts: Total nonpriority assets Existing goodwill Total assets Zone Analysis Group Total Priority accounts Nonpriority accounts Ownership Portion 0 0 - Cumulative Total 0 0 0 0 Price Analysis Price = Assign to priority accounts Assign to nonpriority accounts Goodwill Extraordinary gain 500,000 0 full value Allocation Tables Priority Accounts Market Total Percent Available Assign - Book Adjust - - - - - - - - - Nonpriority Accounts Total Goodwill Extraordinary gain - - - Determination and Distribution of Excess Schedule Price paid for investment: Less book value interest acquired: Common stock Paid-in capital in excess of par Retained earnings Total equity Interest acquired Excess of cost over book value (debit) Adjustments : Total adjustments 100.00% Amortization - Page 4 Prob 3-10 Schedules A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 B C D E F G Annual Amount Current Year Prior Years Total Key DR CR Problem 3-10 Schedules Amortization Schedules Year of consolidation Account adjustments 3 Life Total amortizations Income distribution schedules: Subsidiary: Internally generated net income Total NCI share Controlling share Parent Internally generated net income Controlling share of subsidiary Amortizations Total Page 5 Prob 3-10 Worksheet A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 B C D E F G H I J K Consol Net Inc. NCI Control. R.E. Consol. Bal. Sht. Problem 3-10 (concluded) Year of consolidation 3 Cash Accounts receivable Inventory Land Investment in Sailair Trial Balance Pcraft Sailair 80,000 60,000 90,000 55,000 120,000 86,000 100,000 60,000 500,000 Buildings Accumulated depreciation - bldgs. Equipment Accumulated depreciation - equip. 800,000 (220,000) 150,000 (90,000) Bonds payable Common stock, $1 par - Sailair Paid-in capital in excess of par - Sailair Retained earnings - Sailair Common stock - Pcraft Paid-in capital in excess of par - Pcraft Retained earnings- Pcraft (60,000) - Eliminations Dr Cr 300,000 (80,000) 100,000 (72,000) (102,000) (100,000) (10,000) (90,000) (182,000) (100,000) (900,000) (315,000) Sales Cost of goods sold Depr. expense - building Depr. expense - equipment Other expenses Interest expense (800,000) 450,000 30,000 15,000 140,000 Dividend income Dividends declared - Sailair Dividends declared - Pcraft Totals Consolidated net income NCI share Controlling share NCI Controlling retained earnings Totals (350,000) 210,000 15,000 14,000 68,000 8,000 (10,000) 10,000 20,000 - - Eliminations and Adjustments: Page 6 L