FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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On January 1, 2023, Pulaski, Incorporated, acquired a 60 percent interest in the common stock of Sheridan, Incorporated, for
$392,400. Sheridan's book value on that date consisted of common stock of $100,000 and retained earnings of $231,900. Also, the
acquisition-date fair value of the 40 percent noncontrolling interest was $261,600. The subsidiary held patents (with a 10-year
remaining life) that were undervalued within the company's accounting records by $81,700 and also had unpatented technology (15-
year estimated remaining life) undervalued by $57,000. Any remaining excess acquisition-date fair value was assigned to an indefinite-
lived trade name. Since acquisition, Pulaski has applied the equity method to its Investment in Sheridan account. At year-end, there are
no intra-entity payables or receivables.
Intra-entity inventory sales between the two companies have been made as follows:
Year
2023
2024
Cost to
Pulaski
$ 130,800
Transfer Price
to Sheridan
Ending Balance
(at transfer
price)
$ 163,500
113,400
151,200
$ 54,500
37,800
The individual financial statements for these two companies as of December 31, 2024, and the year then ended follow:
Items
Sales
Cost of goods sold
Operating expenses
Equity in earnings in Sheridan
Net income
Retained earnings, 1/1/24
Net income
Dividends declared
Retained earnings, 12/31/24
Cash and receivables
Inventory
Investment in Sheridan
Buildings (net)
Equipment (net)
Patents (net)
Total assets
Liabilities
Common stock
Pulaski,
Incorporated
$ (741,000)
487,000
199,020
(35,308)
$ (90,288)
$ (792,000)
(90,288)
49,100
$ (833,188)
$ 283,600
266,400
429,006
347,000
247,700
0
$ 1,573,706
$ (440,518)
(300,000)
(833,188)
Sheridan,
Incorporated
$ (377,000)
230,200
78,400
0
$ (68,400)
$ (283,800)
(68,400)
19,600
$ (332,600)
$ 151,400
132,000
0
206,500
90,100
24,800
$ 604,800
$ (172,200)
(100,000)
(332,600)
Retained earnings, 12/31/24
Total liabilities and equities
Note: Parentheses indicate a credit balance.
Required:
$ (1,573,706)
$ (604,800)
a. Show how Pulaski determined the $429,006 Investment in Sheridan account balance. Assume that Pulaski defers 100 percent of
downstream intra-entity profits against its share of Sheridan's income.
b. Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2024.
Complete this question by entering your answers in the tabs below.
Required A Required B
Show how Pulaski determined the $429,006 Investment in Sheridan account balance. Assume that Pulaski defers 100 percent
of downstream intra-entity profits against its share of Sheridan's income.
Note: Amounts to be deducted should be indicated with a minus sign.
Consideration transferred
0
$
0
<Required A
Required B >
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Transcribed Image Text:On January 1, 2023, Pulaski, Incorporated, acquired a 60 percent interest in the common stock of Sheridan, Incorporated, for $392,400. Sheridan's book value on that date consisted of common stock of $100,000 and retained earnings of $231,900. Also, the acquisition-date fair value of the 40 percent noncontrolling interest was $261,600. The subsidiary held patents (with a 10-year remaining life) that were undervalued within the company's accounting records by $81,700 and also had unpatented technology (15- year estimated remaining life) undervalued by $57,000. Any remaining excess acquisition-date fair value was assigned to an indefinite- lived trade name. Since acquisition, Pulaski has applied the equity method to its Investment in Sheridan account. At year-end, there are no intra-entity payables or receivables. Intra-entity inventory sales between the two companies have been made as follows: Year 2023 2024 Cost to Pulaski $ 130,800 Transfer Price to Sheridan Ending Balance (at transfer price) $ 163,500 113,400 151,200 $ 54,500 37,800 The individual financial statements for these two companies as of December 31, 2024, and the year then ended follow: Items Sales Cost of goods sold Operating expenses Equity in earnings in Sheridan Net income Retained earnings, 1/1/24 Net income Dividends declared Retained earnings, 12/31/24 Cash and receivables Inventory Investment in Sheridan Buildings (net) Equipment (net) Patents (net) Total assets Liabilities Common stock Pulaski, Incorporated $ (741,000) 487,000 199,020 (35,308) $ (90,288) $ (792,000) (90,288) 49,100 $ (833,188) $ 283,600 266,400 429,006 347,000 247,700 0 $ 1,573,706 $ (440,518) (300,000) (833,188) Sheridan, Incorporated $ (377,000) 230,200 78,400 0 $ (68,400) $ (283,800) (68,400) 19,600 $ (332,600) $ 151,400 132,000 0 206,500 90,100 24,800 $ 604,800 $ (172,200) (100,000) (332,600) Retained earnings, 12/31/24 Total liabilities and equities Note: Parentheses indicate a credit balance. Required: $ (1,573,706) $ (604,800) a. Show how Pulaski determined the $429,006 Investment in Sheridan account balance. Assume that Pulaski defers 100 percent of downstream intra-entity profits against its share of Sheridan's income. b. Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2024. Complete this question by entering your answers in the tabs below. Required A Required B Show how Pulaski determined the $429,006 Investment in Sheridan account balance. Assume that Pulaski defers 100 percent of downstream intra-entity profits against its share of Sheridan's income. Note: Amounts to be deducted should be indicated with a minus sign. Consideration transferred 0 $ 0 <Required A Required B >
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