On January 1, 2016, Plymouth Corporation acquired 80 percent of the outstanding voting stock of Sander Company in exchange for $1,200,000 cash. At that time, although Sander’s book value was $925,000, Plymouth assessed Sander’s total business fair value at $1,500,000. Since that time, Sander has neither issued nor reacquired any shares of its own stock. The book values of Sander’s individual assets and liabilities approximated their acquisition-date fair values except for the patent account, which was undervalued by $350,000. The undervalued patents had a five-year remaining life at the acquisition date. Any remaining excess fair value was attributed to goodwill. No goodwill impairments have occurred. Sander regularly sells inventory to Plymouth. Below are details of the intra-entity inventory sales for the past three years: Gross Profit Intra-Entity Rate on Ending Inv. Intra-Entity Intra-Entity Transfer Inventory Year Sales Price Transfers 2016 $ 125,000 $ 80,000 25% 2017 220,000 125,000 28% 2018 300,000 160,000 25% Separate financial statements as of December 31, 2018: Plymouth Sander Revenues $ (1,740,000) $ (950,000) Cost of goods sold 820,000 500,000 Depreciation expense 104,000 85,000 Amortization expense 220,000 120,000 Interest expense 20,000 15,000 Equity in earnings of Sander (124,000) - Net income $ (700,000) $ (230,000) Retained earnings, 1/1/18 $ (2,800,000) $ (345,000) Net income (700,000) (230,000) Dividends paid 200,000 25,000 Retained earnings, 12/31/18 $ (3,300,000) $ (550,000) Cash $ 535,000 $ 115,000 Accounts receivable 575,000 215,000 Inventories 990,000 800,000 Investment in Sander 1,420,000 - Buildings and equipment 1,025,000 863,000 Patents 950,000 107,000 Total assets $ 5,495,000 $ 2,100,000 Accounts payable $ (450,000) $ (200,000) Notes payable (545,000) (450,000) Common stock (900,000) (800,000) Additional paid-in capital (300,000) (100,000) Retained earnings 12/31/18 (3,300,000) (550,000) Total liabilities and stockholders' equity $ (5,495,000) $ (2,100,000) a. Prepare a schedule that calculates the Equity in Earnings of Sander account balance. b. Prepare a worksheet to arrive at consolidated figures for external reporting purposes. At year-end, there are no intra-entity payables or receivables?

On January 1, 2016, Plymouth Corporation acquired 80 percent of the outstanding voting stock of Sander Company in exchange for $1,200,000 cash. At that time, although Sander’s book value was $925,000, Plymouth assessed Sander’s total business fair value at $1,500,000. Since that time, Sander has neither issued nor reacquired any shares of its own stock. The book values of Sander’s individual assets and liabilities approximated their acquisition-date fair values except for the patent account, which was undervalued by $350,000. The undervalued patents had a five-year remaining life at the acquisition date. Any remaining excess fair value was attributed to goodwill. No goodwill impairments have occurred. Sander regularly sells inventory to Plymouth. Below are details of the intra-entity inventory sales for the past three years: Gross Profit Intra-Entity Rate on Ending Inv. Intra-Entity Intra-Entity Transfer Inventory Year Sales Price Transfers 2016 $ 125,000 $ 80,000 25% 2017 220,000 125,000 28% 2018 300,000 160,000 25% Separate financial statements as of December 31, 2018: Plymouth Sander Revenues $ (1,740,000) $ (950,000) Cost of goods sold 820,000 500,000 Depreciation expense 104,000 85,000 Amortization expense 220,000 120,000 Interest expense 20,000 15,000 Equity in earnings of Sander (124,000) - Net income $ (700,000) $ (230,000) Retained earnings, 1/1/18 $ (2,800,000) $ (345,000) Net income (700,000) (230,000) Dividends paid 200,000 25,000 Retained earnings, 12/31/18 $ (3,300,000) $ (550,000) Cash $ 535,000 $ 115,000 Accounts receivable 575,000 215,000 Inventories 990,000 800,000 Investment in Sander 1,420,000 - Buildings and equipment 1,025,000 863,000 Patents 950,000 107,000 Total assets $ 5,495,000 $ 2,100,000 Accounts payable $ (450,000) $ (200,000) Notes payable (545,000) (450,000) Common stock (900,000) (800,000) Additional paid-in capital (300,000) (100,000) Retained earnings 12/31/18 (3,300,000) (550,000) Total liabilities and stockholders' equity $ (5,495,000) $ (2,100,000) a. Prepare a schedule that calculates the Equity in Earnings of Sander account balance. b. Prepare a worksheet to arrive at consolidated figures for external reporting purposes. At year-end, there are no intra-entity payables or receivables?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The book values of Sander’s individual assets and liabilities approximated their acquisition-date fair values except for the patent account, which was undervalued by $350,000. The undervalued patents had a five-year remaining life at the acquisition date. Any remaining excess fair value was attributed to goodwill. No goodwill impairments have occurred.

Sander regularly sells inventory to Plymouth. Below are details of the intra-entity inventory sales for the past three years:

			Gross Profit
		Intra-Entity	Rate on
		Ending Inv.	Intra-Entity
	Intra-Entity	Transfer	Inventory
Year	Sales	Price	Transfers
2016	$ 125,000	$ 80,000	25%
2017	220,000	125,000	28%
2018	300,000	160,000	25%

Separate financial statements as of December 31, 2018:

	Plymouth	Sander
Revenues	$ (1,740,000)	$ (950,000)
Cost of goods sold	820,000	500,000
Depreciation expense	104,000	85,000
Amortization expense	220,000	120,000
Interest expense	20,000	15,000
Equity in earnings of Sander	(124,000)	-
Net income	$ (700,000)	$ (230,000)

Retained earnings, 1/1/18	$ (2,800,000)	$ (345,000)
Net income	(700,000)	(230,000)
Dividends paid	200,000	25,000
Retained earnings, 12/31/18	$ (3,300,000)	$ (550,000)

Cash	$ 535,000	$ 115,000
Accounts receivable	575,000	215,000
Inventories	990,000	800,000
Investment in Sander	1,420,000	-
Buildings and equipment	1,025,000	863,000
Patents	950,000	107,000
Total assets	$ 5,495,000	$ 2,100,000

Accounts payable	$ (450,000)	$ (200,000)
Notes payable	(545,000)	(450,000)
Common stock	(900,000)	(800,000)
Additional paid-in capital	(300,000)	(100,000)
Retained earnings 12/31/18	(3,300,000)	(550,000)
Total liabilities and stockholders' equity	$ (5,495,000)	$ (2,100,000)

a. Prepare a schedule that calculates the Equity in Earnings of Sander account balance.

b. Prepare a worksheet to arrive at consolidated figures for external reporting purposes. At year-end, there are no intra-entity payables or receivables?

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