70.2K

Verified Solution

Link Copied!

prepare the consolidated income statement and balanche sheet.

On January 1, 2015, Parson Company acquires an 80% interest in Solar Company for $500,000. Solar had the following balance sheet on the date of acquisition: Solar Company Balance Sheet 1-Jan-15 Liabilities Accounts Payable $ Bonds Payable $ 70,000 100,000 Assets Accounts Receivable $ 60,000 Inventory $ 80,000 Land $ 120,000 Buildings $ 250,000 Acc'l Depreciation $ (50,000) Equipment $ 120,000 Acc'l Depreciation $ (70,000) Equity Common Stock Paid-in excess of par Retained Earnings uusi $ $ 10,000 160,000 170,000 Total Assets $ 510,000 Total Liab & Equity $ 510,000 Buildings, wich have a 20-year life, are undervalued by $70,000. Equipment, which has a 5-year life, is undervalued by $50,000. Any remaining excess of cost over book value is attributable to goodwill, which has a 15-year life for tax purposes only. Parson uses the simple equity method to account for its investment in Solar. During 2016, Solar sells $30,000 worth of merchandise to Parson. As a result of these intercompany sales, Parson holds beginning inventory of $12,000 and ending inventory of $16,000 of merchandise acquired from Solar. At December 31, 2016, Parson owes Solar $6,000 from merchandise sales. Solar has a gross profit rate of 30%. On January 1, 2015, Parson sells equipment having a net book value of $50,000 to Solar for $80,000. The equipment has a 5-year useful life and is depreciated using the straight-line method. Neither company has provided for income tax. The companies qualify as an affiliated group and, thus, will file a consolidated tax return based on a 40% corporate tax rate. The original purchase is not a taxable exchange. The tral balance for December 31, 2016 for both companies is on the following page: S. Cash Accounts receivable Inventory Land Investment in Solar Buildings Accumulated depreciation Equipment Accumulated depreciation Accounts payable Bond payable Deferred tax liability Common stock - Solar Paid-in excess - Solar Retained earnings - Solar Common stock - Parson Paid-in excess - Parson Retained earnings- Parson Sales Cost of goods sold Depr. expense-building Depreciation exp. - equipment Other expenses Interest expense Subsidiary income Dividends declared - Solar Dividends declared - Parson Totals Trial Balance Parson Solar 46,080 24,000 150,600 90,000 105.000 90,000 100,000 150.000 567,200 800,000 250,000 (250,000) (70,000) 210,000 120,000 (115.000) (90,000) (70,000) (40,000) 0 (100.000) (2,880) (10.000) (160,000) (222.000) (100,000) (600,000) (622,400) (890,000) (350,000) 480,000 220,000 30,000 10,000 25,000 10,000 150,000 60,000 8.000 (33.600) 10.000 20,000 0 0

Answer & Explanation Solved by verified expert

See Answer