29 Jun Question 8. On January 1, 20X1, Patrick C
Question
8. On January 1, 20X1, Patrick Company purchased 60% of the common stock of Solomon Company for $200,000. On this date, Solomon had common stock, other paid-in capital, and retained earnings of $20,000, $60,000, and $120,000 respectively.
On January 1, 20X1, the only tangible asset of Solomon which was undervalued was a long-term investment, which was worth $15,000 more than book value.
On July 1, 20X2, Patrick Company purchased an additional 30% of the common stock of Solomon Company for $140,000.
On July 1, 20X2, the long-term investment was undervalued by $20,000 and any remaining excess of cost over book value was due to goodwill.
Net income and dividends for 2 years for Solomon Company were:
………………
Net income for year
20X1
20X2
$60,000
$96,000
Dividends, paid-in December……….
0
50,000
In 20X2, the net income of Solomon for the first half of the year was $50,000.
In both 20X1 and 20X2, Patrick has accounted for its investment in Solomon using the simple equity method.
In the last quarter of 20X2, Solomon sold $80,000 of goods to Patrick, at a gross profit rate of 30%. On December 31, 20X2, $20,000 of these goods are in Patrick’s ending inventory.
Required:
a. Using the information above or on the separate worksheet, prepare determination and distribution of excess schedules for the two purchases. Use the Patrick company concept (prorata market value approach) in any write-up of assets.
b. Complete the Figure 7-3 worksheet for consolidated financial statements for 20X2.
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