XYZ Company

Balance Sheet

January 1, 2011

On January 1, 2011 ABC Company acquired XYZ Company ABC paid $300,000 for 80% of XYZ common stock. On the date of acquisition, XYZ had the following balance sheet:

 Assets                                                                 Liabilities and Equity           

Accounts receivable              $ 50,000          Accounts payable                     $ 60,000

Inventory                                60,000          Bonds payable                          200,000

Land                                        100,000          Common stock ($1par)         10,000

Buildings                                 150,000          Paid in capital in excess of par 90,000

Accumulated depreciation     (50,000)        Retained earnings                  60,000

Equipment                              100,000

Accumulated depreciation     (30,000)

Goodwill                                 40,000                                                                       

 Total Assets   $420,000          Total liabilities and Equity    $420,000

Buildings, which have a 20-year life, are understated by $100,000. Equipment, which has a 5-year life, is understated by $50,000. Any remaining excess is goodwill. ABC uses the simple method to account for its investment in XYZ.

On January 1, 2013, XYZ held merchandise sold to it from ABC for $12,000. This beginning inventory had an applicable gross profit of 35%. During 2013, ABC sold merchandise to XYZ for $55,000. On December 31, 2013, XYZ held $10,000 of this merchandise in its inventory. This ending inventory had an applicable gross profit of 40%. XYZ owed ABC $7,500 on December 31 as a result of this intercompany sale.

ABC held $16,000 worth of merchandise in its January 1, 2013, inventory from sales from XYZ. This beginning inventory had an applicable gross profit of 30%. During 2013 XYZ sold merchandise to ABC for $35,000. ABC held $20,000 of this inventory at the end of the year. This ending inventory had an applicable gross profit of 35%. ABC owed XYZ $5,000 on December 31 as a result of this intercompany sale.

On January 1, 2011, ABC sold equipment to XYZ at a profit of $40,000. Depreciation on this equipment is computed over an 8-year life using the straight-line method.

On January 1, 2012 XYZ sold equipment with a book value of $30,000 to ABC for $54,000. This equipment has a 6-year life and is depreciated using the straight-line method,

ABC and XYZ had the following trial balances on December 31, 2013.

                                                                                    ABC                            XYZ

                                                                                    Company                   Company

Cash                                                                           195,400                        53,500

Account receivable                                                    140,000                        53,000

Inventory                                                                   140,000                        81,000

Land                                                                           100,000                        60,000

Investment in XYZ Company                                 443,600                       

Buildings                                                                    800,000                       150,000

Accumulated Depreciation                           (280,000)                      (65,000)

Equipment                                                                 150,000                        220,000

Accumulated Depreciation                           (115,000)          (103,000)

Goodwill                                                                                                          40,000

Accounts Payable                                                       (25,000)                      (50,000)

Bonds Payable                                                                                    (100,000)

Common Stock                                                         (100,000)                     (10,000)

Paid in capital in excess of par                                (800,000)                     (90,000)

Retained Earnings, January 1, 2013                       (510,000)                    (169,500)

Sales                                                                            (850,000)                    (500,000)

Cost of Goods Sold                                                   480,000                       290,000

Depreciation Expense – Buildings                           30,000                       5,000

Depreciation Expense – Equipment                        15,000                       23,000

Other Expenses                                                          210,000                       94,000

Interest Expense                                                                                             8,000

Subsidiary Income                                                     (64,000)

Dividends Declared                                                   40,000                       10,000

            Totals                                                                         0                                  0

1. Prepare a value analysis and a determination and distribution of excess for the investment in XYZ

2. Complete a consolidated worksheet for ABC Company and its subsidiary XYZ Company as of December 31, 2013. Prepare supporting amortization and income distribution schedules.