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 $78,400 and also had unpatented technology (15-year estimated remaining life) undervalued by $54,300. 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	$ 127,200	$ 159,000	$ 53,000
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	$ (732,000)	$ (367,000)
Cost of goods sold	481,100	224,200
Operating expenses	197,185	76,400
Equity in earnings in Sheridan	(34,189)	0
Net income	$ (87,904)	$ (66,400)
Retained earnings, 1/1/24	$ (774,600)	$ (282,800)
Net income	(87,904)	(66,400)
Dividends declared	47,900	18,600
Retained earnings, 12/31/24	$ (814,604)	$ (330,600)
Cash and receivables	$ 277,400	$ 150,500
Inventory	260,500	131,200
Investment in Sheridan	423,453	0
Buildings (net)	338,000	205,300
Equipment (net)	241,300	89,100
Patents (net)	0	23,600
Total assets	$ 1,540,653	$ 599,700
Liabilities	$ (426,049)	$ (169,100)
Common stock	(300,000)	(100,000)
Retained earnings, 12/31/24	(814,604)	(330,600)
Total liabilities and equities	$ (1,540,653)	$ (599,700)

Note: Parentheses indicate a credit balance.

Required:

Show how Pulaski determined the $423,453 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:

Show how Pulaski determined the $423,453 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:

Show how Pulaski determined the $423,453 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.