Paul Company acquired 100% of the outstanding common stock of Saul Company on June 30, 2014 for $473,000.
On the acquisition date, Saul Company had retained earnings in the amount of $60,000; all other equity accounts have not changed since acquisition date. The fair value of its recorded assets and liabilities was equal to their book value. The excess of cost over the fair value of the recorded net assets was attributed to an unrecorded manufacturing formula held by Saul Company, which had an expected remaining useful life of five years from June 30, 2014.
On December 31, 2014, Paul company sold equipment (with an original cost of $100,000 and accumulated depreciation of $50,000)
to Saul Company for $97,500. This equipment has a remaining useful life of 5 years.
During 2015, Saul Company sold land to Paul Company at a profit of $15,000. Paul still holds the land acquired from Saul.
The inventory of Paul Company on December 31, 2015 included goods purchased from Saul Company on which Saul journalized a gross profit from the interco sale of $7,500.
During 2016, Saul Company sold goods to Paul Company for $375,000, of which $60,000 was unpaid at December 31, 2016. The December 31, 2016 inventory of Paul Company included goods acquired from Saul Company on which Saul journalized a gross profit from the interco sale of $10,500.
During 2016 Paul Company sold goods to Saul Company for $600,000 at a markup on sales of 20%. At December 31, 2016, 30% of these goods remain unsold by Saul Company. Saul Company still owes Paul Company $120,000 for these inventory purchases.
On January 1, 2016 Saul Company reports $600,000 in bonds outstanding with a book value of $564,000. Paul purchases half of these bonds on the open market for $291,000. The intercompany bond transaction is attributed to the parent company.
Required: Carefully Follow and label each step.
1. Prepare the acquisition analysis as of acquisition date. Compute the unamortized balance in the unrecorded manufacturing formulas as of 1/1/2016.
2. Analyze each intercompany transaction. Label as either upstream downstream.
3. Calculate Net Income Allocated to the Controlling Interest (aka consolidated net income)
4. Verify the calculation of the balance in the acccount equity in sub earnings and record the parent company entries with respect to its equity investment in sub for the year 2016.
5. Prepare all elimination entries for 2016.
6. Complete the consolidating spreadsheet for the year ended 12/31/2016.