Equity method: The equity method basically keeps the record of the parent’s ownership interest that is multiplied by the reported net income of the subsidiary. This income will be added to parent’s investment account and the deduction in this method will be of the parent’s ownership interest multiplied by the reported losses of the subsidiary and parent’s ownership interest multiplied by the declared dividends of the subsidiary. All together it equals the equity-adjusted balance. Cost method: The cost method basically retains the original cost of acquisition balance in the subsidiary account. As the income is earned by the subsidiary, no adjustments would be made. To calculate : The preparation of determination and distribution of excess schedule with the help of information provided.

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On January 1, 2015, Paro Company purchases 80% of the common stock of Solar Company for $320,000. On this date, Solar has common stock, other paid-in capital in excess of par, and retained earnings of $50,000, $100,000, and $150,000, respectively. Net income and dividends for two years for Solar Company are as follows: 2015 2016 Net income . . . . . . . . . . . . . . . . . . . . . . $60,000 $90,000 Dividends. . . . . . . . . . . . . . . . . . . . . . . . 20,000 30,000 On January 1, 2015, the only undervalued tangible assets of Solar are inventory and the building. Inventory, for which FIFO is used, is worth $10,000 more than cost. The inventory is sold in 2015. The building, which is worth $30,000 more than book value, has a remaining life of 10 years, and straight-line depreciation is used. The remaining excess of cost over book value is attributable to goodwill. 1. Using this…

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Chapter 3, Problem 3A.1.1AP

To determine

Equity method:

The equity method basically keeps the record of the parent’s ownership interest that is multiplied by the reported net income of the subsidiary. This income will be added to parent’s investment account and the deduction in this method will be of the parent’s ownership interest multiplied by the reported losses of the subsidiary and parent’s ownership interest multiplied by the declared dividends of the subsidiary. All together it equals the equity-adjusted balance.

Cost method:

The cost method basically retains the original cost of acquisition balance in the subsidiary account. As the income is earned by the subsidiary, no adjustments would be made.

To calculate:

The preparation of determination and distribution of excess schedule with the help of information provided.

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On January 1, 2015, Paro Company purchases 80% of the common stock of Solar Company for $320,000. On this date, Solar has common stock, other paid-in capital in excess of par, and retained earnings of $50,000, $100,000, and $150,000, respectively. Net income and dividends for two years for Solar Company are as follows: 2015 2016 Net income . . . . . . . . . . . . . . . . . . . . . . $60,000 $90,000 Dividends. . . . . . . . . . . . . . . . . . . . . . . . 20,000 30,000 On January 1, 2015, the only undervalued tangible assets of Solar are inventory and the building. Inventory, for which FIFO is used, is worth $10,000 more than cost. The inventory is sold in 2015. The building, which is worth $30,000 more than book value, has a remaining life of 10 years, and straight-line depreciation is used. The remaining excess of cost over book value is attributable to goodwill. 1. Using this…

On January 1, 2015, Paro Company purchases 80% of the common stock of Solar Company for $320,000. On this date, Solar has common stock, other paid-in capital in excess of par, and retained earnings of $50,000, $100,000, and $150,000, respectively. Net income and dividends for two years for Solar Company are as follows: 2015 2016Net income . . . . . . . . . . . . . . . . . . . . .$60,000 $90,000Dividends. . . . . . . . . . . . . . . . . . . . . . . 20,000 30,000On January 1, 2015, the only undervalued tangible assets of Solar are inventory and the building. Inventory, for which FIFO is used, is worth $10,000 more than cost. The inventory is sold in 2015. The building, which is worth $30,000 more than book value, has a remaining life of 10 years, and straight-line depreciation is used. The remaining excess of cost over book value is attributable to goodwill.The trial balances for Paro and Solar are as…

On January 1, 2015, Paro Company purchases 80% of the common stock of Solar Company for $320,000. Solar has common stock, other paid-in capital in excess of par, and retained earnings of $50,000, $100,000, and $150,000, respectively. Net income and dividends for two years for Solar are as follows: 2015 2016Net income . . . . . . . . . . . . . . . . . . . . . . $60,000 $90,000Dividends. . . . . . . . . . . . . . . . . . . . . . . . 20,000 30,000On January 1, 2015, the only undervalued tangible assets of Solar are inventory and the building. Inventory, for which FIFO is used, is worth $10,000 more than cost. The inventory is sold in 2015. The building, which is worth $30,000 more than book value, has a remaining life of 10 years, and straight-line depreciation is used. The remaining excess of cost over book value is attributed to goodwill.1. Using this information and the information in the following…