Question
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,
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:
- 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.
- 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.
|
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started