80%, equity, several excess distributions, inventory, fixed assets

80%, equity, several excess distributions, inventory, fixed assets

80%, equity, several excess distributions, inventory, fixed assets

Subject: Business    / Accounting
Question

Problem 4-14 (LO 2, 3) 80%, equity, several excess distributions, inventory, fixed assets, parent and subsidiary sales.Refer to the preceding facts for Purpleâs acquisition of Salmon common stock. On January 1, 2017, Salmon held merchandise sold to it from Purple for $12,000. This beginning inventory had an applicable gross profit of 35%. During 2017, Purple sold merchandise to Salmon for $55,000. On December 31, 2017, Salmon held $10,000 of this merchandise in its inventory. This ending inventory had an applicable gross profit of 40%. Salmon owed Purple $7,500 on December 31 as a result of this intercompany sale.

Purple held $16,000 worth of merchandise in its January 1, 2017, inventory from sales from Salmon. This beginning inventory had an applicable gross profit of 30%. During 2017, Salmon sold merchandise to Purple for $35,000. Purple held $20,000 of this inventory at the end of the year. This ending inventory had an applicable gross profit of 35%. Purple owed Salmon $5,000 on December 31 as a result of this intercompany sale.

On January 1, 2015, Purple sold equipment to Salmon 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, 2016, Salmon sold equipment with a book value of $30,000 to Purple for $54,000. This equipment has a 6-year life and is depreciated using the straight-line method. Purple and Salmon had the following trial balances on December 31, 2017:

Purple Company

Salmon Company

Cash

195,400

53,500

Accounts Receivable

140,000

53,000

Inventory

140,000

81,000

Land

100,000

60,000

Investment in Salmon 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, 2017

(510,000)

(169,500)

Sales

(850,000)

(500,000)

Cost of Goods Sold

480,000

290,000

Depreciation ExpenseâBuildings

30,000

5,000

Depreciation ExpenseâEquipment

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

Required

1. Prepare a value analysis and a determination and distribution of excess schedule for the investment in Salmon.
2. Complete a consolidated worksheet for Purple Company and its subsidiary Salmon Company as of December 31, 2017. Prepare supporting amortization and income distribution schedules.

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