Assets Liabilities and Equity $ 50,000 80,000 20,000 200,000 Current liabilities ... Common stock ($5 par). . Paid-in capital in excess of par Retained earnings... $ 70,000 Accounts receivable Inventory ... Land.... Building (net) 100,000 130,000 50,000 Total assets. $350,000 Total liabilities and equity. $350,000
Lucy Company issues securities with a fair value of $468,000 for a 90% interest in Diamond Company on January 1, 2015, at which time Diamond Company has the following balance sheet: (attached)
It is believed that the inventory and the building are undervalued by $20,000 and $50,000, respectively. The building has a 10-year remaining life; the inventory on hand on January 1, 2015, is sold during the year. The
The separate income statements of the two companies prepared for 2015 are as follows:
Lucy Diamond
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 400,000 $150,000
Cost of goods sold . . . . . . .. . . . . . . . . . . (200,000) (90,000)
Gross profit . . . . . . . . . . . . . . . . . . .. . . . . $ 200,000 $ 60,000
General expenses . . . . . . . . .. . . . . .... . . . (50,000) (25,000)
Depreciation expense . . . . . . . . . . . . . . . . (60,000) (15,000)
Operating income . . . . . . . . . . . . . . . . . . $ 90,000 $ 20,000
Subsidiary income
(90% $14,000 subsidiary net income) 12,600
Net income before income tax . . . . . . $ 102,600 $ 20,000
Provision for tax (does not include tax on subsidiary income) . . . . . . . . . . (27,000) (6,000)
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 75,600 $ 14,000
1. Prepare a value analysis and a determination and distribution of excess schedule for the investment.
2. Prepare the 2015 consolidated income statement and its related income distribution schedules.
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