Problem
On January 1, 20X1, P Co. acquired 80% of the common stock of S Co. for $450,000. On this date, S Co.'s stockholders' equity included common stock of $50,000, additional paid-in-capital of $270,000, and retained earnings of $80,000 (for a total of $400,000).
S Co. book values and fair value were equal on January 1, 20X1 except as follows:
1) Equipment: Total fair value exceeded book value by $40,000. This equipment had a five year life remaining on the January 1, 20X1 purchase date and is being depreciatedon a straight-line basis with $0 salvage value.
2) Copyrights: The total fair value of copyrights not recorded by S Co. on January 1, 20X1 was $24,000. The copyrights had a four year life remaining on January 1, 20X1.
3) Inventory: Total fair value exceeded book value by $6,000 on January 1, 20X1. This inventory was sold during 20X1 by S Co.
Any additional excess of price paid for the investment is attributable to goodwill.
During 20X1 and 20X2, P Co. has appropriately accounted for its investment in S Co. using the simple equity method.
On January 1, 20X2, P Co. held merchandise acquired from S Co. for $8,000. During 20X2, S Co. sold merchandise to P Co. for $30,000, $3,000 of which is still held by P Co. on December 31, 20X2. S Co.'s gross profit on sales rate is 40%. At December 31, 20X2, P Co. still owes S Co. $7,000 for these purchases.
On January 1, 20X2, P Co. sold equipment to S Co. at a gain of $50,000. During 20X2, the equipment was used by S Co. Depreciation is being computed using the straight-line method, a five-year life, and no salvage value.
Required:
Complete the Excel spreadsheets for consolidated financial statements for the year ended December 31, 20X2 for P Co. Use any spreadsheet space you want to use for calculations, such as the preparation of the "Determination and Distribution of Excess Schedule" or use the back of the first page of the test for calculations. Grading will be based solely on the completed spreadsheet and entry descriptions (one entry and its description has been provided as an example).