Problem 5-32 (LO 5-2, 5-3, 5-4, 5-5) On January 1, 2013, Plymouth Corporation acquired 80 percent of the outstanding voting stock of Sander Company in exchange for $1,200,000 cash. At that time, although Sander's book value was $925,000 Plymouth assessed Sander's total business fair value at $1,500,000. Since that time, Sander has neither ssued nor reacquired any shares of its own stock. The book values of Sander's individual assets and liabilities approximated their acquisition date fair values except for the patent account, which was undervalued by $350,000. The undervalued patents had a 5-year remaining life at the acquisition date. Any remaining excess fair value was attributed to goodwill. No goodwill impairments have occurred. Sander regularly sells inventory to Plymouth. Below are details of the intra-entity inventory sales for the past three years: Intra-Entity Ending Inventory at Transfer Price S 80,000 125,000 160,000 Gross Profit Rate on Intra-Entity Inventory Transfers Year 2013 2014 2015 Intra-Entity Sales $125,000 220,000 300,000 25% 28% 25% Separate financial statements for these two companies as of December 31, 2015, follow: Sander Revenues Cost of goods sold Depreciation expense Amortization expense Interest expense Equity in earnings of Sander S (1,740,000) $ (950,000) 820,000 220,000 20,000 (124,000) 85,000 120,000 15,000 Net income S (700,000) S (230,000) Retained earnings 1/1/15 Net income Dividends declared S (2,800,000) S (345,000) 700,000) (230,000) 25,000 200,000 Retained earnings 12/31115 S (3,300,000) S (550,000) S 535,000 S 115,000 575,000 990,000 1,420,000 1,025,000 950,000 215,000 800,000 Investment in Sander Buildings and equipment Patents 863,000 107,000 Total assets S 5,495,000 S 2,100,000 Accounts payable Notes payable Common stock Additional paid-in capital Retained earnings 12/31/15 s (450,000) $ (200,000) (545,000) (450,000) S (900,000) S (800,000) (300,000) (100,000) (3,300,000) (550,000) Total liabilities and stockholders' equity (5,495,000) $ (2,100,000) a. Prepare a schedule that calculates the Equity in Earnings of Sander account balance 2015 income reported by Sander Excess patent fair value amortization Deferred gross profit for 12/31/15 intra-entity inventory Recognized gross profit for 1/1/15 intra-entity inventory Sander's net income adjusted 0 To controlling interest To noncontrolling interest b. Prepare a worksheet to arrive at consolidated figures for external reporting purposes. At year end, there are no intra-entity payables or receivables. (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.) PLYMOUTH AND SANDER Consolidation Worksheet For Year Ending December 31, 2015 Consolidation Entries Consolidated Totals Accounts Plymouth Sander Debit Credit NCI Revenues S 1,740,000) S (950,000) 500,000 85,000 120,000 15,000 Cost of goods sold Amortization expense Interest expense Equity in earnings of Sander Separate company net income Consolidated net income 820,000 104,000 220,000 20,000 (124,000) (700,000) To noncontrolling interest To controlling interest Retained earnings, 1/1 Net income Dividends declared Retained earnings, 12/31 Cash Accounts receivable Inventory Investment in Sander Buildings and equipment Patents Goodwill Total assets Accounts payable Notes payable NCI in Sander 1/1 NCI in Sander 12/31 Common stock APIC Retained earnings, 12/31 Total liabilities and stockholders' equity S (2,800,000)S (345,000) (230,000) 25,000 (550,000) 115,000 215,000 800,000 (700,000) 200,000 S 3,300,000 S 535,000 S 575,000 990,000 1.420,000 1,025,000 950,000 863,000 107,000 S 5,495,000 S 2,100,000 (450.000) (200,000) (545,000) (450,000) (900,000) (300,000) (3,300,000) (5,495,000)S (800,000) (100,000) (550,000) (2,100,000) S