On January 1, 2011, Peres Company purchases 80% of the common stock of Soap Company for $308,000. Soap has common stock, other paid-in capital in excess of par, and retained earnings of $50,000, $100,000, and $150,000, respectively.

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On January 1, 2011, Peres Company purchases 80% of the common stock of Soap Company for $308,000. Soap 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 year for Soap are as follows:
Net income 2011 $60,000 2012 $90,000
Dividends 2011 $20,000 2012 $30,000
On January 1, 2011, the only undervalued tangible assets of Soap are inventory and the building. Inventory, for which is worth $25,000 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 trial balances on December 31, 2012, prepare a value analysis and determination and distribution of excess schedule:
Inventory, December 31
Peres Company 100,000
Soap Company 50,000
Other current assets Peres Company 148,000
Soap Company 180,000
Investment in Soap Company Peres Company 388,000
Building and equipment
Peres Company 350,000
Soap Company 320,000
Land
Peres Company 50,000
Soap Company 50,000
Accumulated depreciation
Peres Company (100,000)
Soap Company (60,000)
Goodwill
Peres Company
Soap Company
Other intangibles
Peres Company 20,000
Current liabilities
Peres Company (120,000)
Soap Company ((40,000)
Bonds payable
Peres Company
Soap Company (100,000)
Other long term liabilities
Peres Company (200,000)
Common stock-Peres Company (200,000)
Other paid-in capital in excess of par-Peres Company (100,000)
Retained earnings -Peres company (214,000)
Common stock-Soap Company (50,000)
Other paid-in capital in excess of par-Soap Company (100,000)
Retained earnings-Soap Company (190,000)
Net sales
Peres Company (520,000)
Soap Company (450,000)
Cost of goods sold
Peres Company 300,000
Soap Company 260,000
Operating expenses
Peres Company 120,000
Soap Company 100,000
Subsidiary income
Peres Company (72,000)
Dividends declared-Peres Company 50,000
Dividends declared- Soap Company 30,000
Totals:
Peres Company O
Soap Company 0

2. Complete a worksheet for consolidated financial statements for 2012. Include columns for eliminations and adjustments, consolidated income, NCI, controlling retained earnings, and consolidated balance sheet.

Problem 3-3
The same as the previous problem except use the sophisticated equity method instead of the simple equity method
On January 1 2011, the only undervalued tangible assets of Soap are inventory and the building. Inventory, for which FIFO is used, is worth $10,000 more than cost. The inventory is sold in 2011. The building, which is worth $25,000 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 Peres and Soap are as follows:
Inventory, December 31
Peres Company 100,000
Soap Company 50,000
Other current assets
Peres Company 148,000
Soap Company 180,000
Investment in Soap Company Note 1
Land
Peres Company 50,000
Soap Company 50,000
Building and equipment
Peres Company 350,000
Soap Company 320,000
Accumulated depreciation
Peres Company (100,000)
Soap Company (60,000)
Goodwill
Peres Company
Soap Company
Other intangibles
Peres Company 20,000
Current liabilities
Peres Company (120,000)
Soap Company (40,000)
Bonds payable
Soap Company (100,000)
Other long-term liabilities
Peres Company (200,000)
Common stock-Peres Company (200,000)
Other paid-in capital in excess of par-Peres Company (100,000)
Retained earnings-Peres Company (204,000)
Common stock-Soap Company (50,000)
Other paid-in capital in excess of par-Soap Company (100,000)
Retained earnings-Soap Company (190,000)
Net sales
Peres Company (520,000)
Soap Company (450,000)
Cost of goods sold
Peres Company 300,000
Soap Company 260,000
Operating expenses
Peres Company 120,000
Soap Company 100,000
Subsidiary income Note 1
Dividends declared-Peres Company 50,000
Dividends declared-Soap Company 30,000
Note1: To be calculated.
1. Prepare a value analysis and determination and distribution of excess schedule
2. Peres Company carries the investment in Soap Company under the sophisticated equity method. In general journal form, record the entries that would be made to the equity method in 2011 and 2012.
3. Compute the balance that should appear in Investment in Soap Company and in Subsidiary Income on December 31, 2012 (the second year). Fill in these amounts on Peres Company’s trial balance for 2012.
4. Complete a worksheet for consolidated financial statements for 2012. Include columns for eliminations and adjustments, consolidated income, NCI, controlling retained earnings, and consolidated balance sheet.




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