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On January 1 20x1 Powers Company acquired 80% of the common stock of Sculley Company for $195,000. On this date Sculley had total owners' equity of $200000 common stock other paid-in capital and

On January 1, 20x1, Powers Company acquired 80% of the common stock of Sculley Company for $195,000. On this date Sculley had total owners' equity of $200,000 (common stock, other paid-in capital, and retained earnings of $10,000, $90,000 and $100,000 respectively).

Any excess of cost over book value is attributable to inventory (worth $6,250 more than cost), to equipment (worth $12,500 more than book value), and to patents. FIFO is used for inventories. The equipment has remaining life of five years and straight-line depreciation is used. The excess attributable to the patents is to be amortized over 20 years.

 

 

On July 1, 20x2 Sculley borrowed $100,000 from Powers with a 10% 1-year note; interest is due at maturity.

 

 

On January 1, 20x2, Powers held merchandise acquired from Sculley for $10,000. During 20x2, Sculley sold the merchandise to Powers for $50,000, $20,000 of which is still held by Powers on December 31, 20x2. Sculley's usual gross profit on affiliated sales is 50%

On December 31, 20x1, Powers sold equipment to Sculley at a gain of $10,000. During 20x2, the equipment was used by Sculley. Depreciation is being computed using the straight-line method, a five-year life, and no salvage value.

 

 

Both companies have a calendar-year fiscal year. Assume that during 20x1 and 20x2, Powers has appropriately accounted for its investment in Sculley using the cost method

Required:

a. Using the information above and the worksheet below, prepare a determination and distribution of excess schedule, and related amortization of excesses.

b. Prepare journal entries for all related transactions.

c. Prepare and complete a worksheet for consolidated financial statements for the year ended December 31, 20x2.

d. Prepare, in good format, consolidated financial statements for the year including the income statement and balance sheet ended December 31, 20x2.

Jun 18 2020 View more View Less

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