Paul Company purchased 80% of the shares of Sara Inc. on December 31, 20X3, for $120,000. The following determination and distribution of excess schedule was prepared on the date of purchase.

Price paid $120,000

Less interest acquired:

Common stock $100,000

Retained earnings 30,000

Total stockholders equity $130,000

Interest acquired 80%

104,000

Goodwill

$ 16,000

Paul Company sells merchandise to Sara Inc. at the same price and terms as it sells to other customers. During 20X7 Pauls sales to Sara totaled $100,000. Sara had $30,000 of merchandise purchased from Paul in its December 31, 20X7, inventory, which was an increase of $10, 000 over the previous year. Invoices of $21,000 for intercompany purchases remains unpaid at year end.

Paul advanced $10,000 to Sara for a future advertising campaign. The advance is outstanding at year end.

On July 1, 20X4, Sara purchased real estate from Paul for $115,000. Of that amount, $15,000 was allocated for land, and $100,000 for the building. The land had cost Paul $15,000, and the building cost Paul $80,000 to build. The building has a 20 year life and is depreciated using the straight line method depreciation. The purchase was financed in part by an $80,000 mortgage note held by Paul Company. Principle payments of $20,000 are made on each 1 year anniversary of the sale. Interest is also to be paid on each payment date at the rate of 10% annual. Paul company credits expenses account for interest earned.

Sara Inc. paid cash in dividend of $9,000 on December 1, 20X7

Instructions:

Prepare the adjustments and elimination entries on an adjustment sheet providing explanations for your entries

Post the entries to the worksheet

Prepare the Income Distribution Schedules

Complete the worksheet for December 31, 20X7