Problem 5-27 (Algo) (LO 5-2, 5-3, 5-4, 5-5)

On January 1, 2023, Pulaski, Incorporated, acquired a 60 percent interest in the common stock of Sheridan, Incorporated, for $384,600. Sheridan's book value on that date consisted of common stock of $100,000 and retained earnings of $227,300. Also, the acquisition-date fair value of the 40 percent noncontrolling interest was $256,400. The subsidiary held patents (with a 10-year remaining life) that were undervalued within the company's accounting records by $83,800 and also had unpatented technology (15-year estimated remaining life) undervalued by $59,700. Any remaining excess acquisition-date fair value was assigned to an indefinite-lived trade name. Since acquisition, Pulaski has applied the equity method to its Investment in Sheridan account. At year-end, there are no intra-entity payables or receivables.

Intra-entity inventory sales between the two companies have been made as follows:

Year	Cost to Pulaski	Transfer Price to Sheridan	Ending Balance (at transfer price)
2023	$ 133,800	$ 167,250	$ 55,750
2024	112,500	150,000	37,500

The individual financial statements for these two companies as of December 31, 2024, and the year then ended follow:

Items	Pulaski, Incorporated	Sheridan, Incorporated
Sales	$ (749,000)	$ (385,000)
Cost of goods sold	492,200	235,000
Operating expenses	200,935	80,000
Equity in earnings in Sheridan	(36,359)	0
Net income	$ (92,224)	$ (70,000)
Retained earnings, 1/1/24	$ (810,300)	$ (284,600)
Net income	(92,224)	(70,000)
Dividends declared	50,100	20,100
Retained earnings, 12/31/24	$ (852,424)	$ (334,500)
Cash and receivables	$ 290,200	$ 152,300
Inventory	272,600	132,700
Investment in Sheridan	424,713	0
Buildings (net)	355,000	207,500
Equipment (net)	253,300	90,800
Patents (net)	0	25,500
Total assets	$ 1,595,813	$ 608,800
Liabilities	$ (443,389)	$ (174,300)
Common stock	(300,000)	(100,000)
Retained earnings, 12/31/24	(852,424)	(334,500)
Total liabilities and equities	$ (1,595,813)	$ (608,800)

Note: Parentheses indicate a credit balance.

Required:

1. Show how Pulaski determined the $424,713 Investment in Sheridan account balance. Assume that Pulaski defers 100 percent of downstream intra-entity profits against its share of Sheridans income.
2. Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2024.

• Required B

Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2024.

Note: For accounts where multiple consolidation 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. Input all amounts as positive values.

PULASKI, INCORPORATED, AND SHERIDAN, INCORPORATED
Consolidation Worksheet
For Year Ending December 31, 2024
			Consolidation Entries
Accounts	Pulaski	Sheridan	Debit	Credit	Noncontrolling Interest	Consolidated Totals
Sales	$(749,000)	$(385,000)
Cost of goods sold	492,200	235,000
Operating expenses	200,935	80,000
Equity in earnings of Sheridan	(36,359)	0
Separate company net income	(92,224)	(70,000)
Consolidated net income
To noncontrolling interest
To Pulaski, Incorporated
Retained earnings 1/1/24	(810,300)	(284,600)
Net income	(92,224)	(70,000)
Dividends declared	50,100	20,100
Retained earnings 12/31/24	$(852,424)	$(334,500)
Cash and receivables	$290,200	$152,300
Inventory	272,600	132,700
Investment in Sheridan	424,713	0
Buildings (net)	355,000	207,500
Equipment (net)	253,300	90,800
Patents (net)	0	25,500
Unpatented technology
Trade name
Total assets	$1,595,813	$608,800
Liabilities	(443,389)	(174,300)
Common stock	(300,000)	(100,000)
Noncontrolling interest 1/1/24
Noncontrolling interest 12/31/24
Retained earnings 12/31/24	(852,424)	(334,500)
Total liabilities and equities	$(1,595,813)	$(608,800)	$504,754	$21,435