4 On January 1, 2016, Plymouth Corporation acquired 80 percent of the outstandin

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4 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. 10 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. points Sander regularly sells inventory to Plymouth. Below are details of the intra-entity inventory sales for the past three years: eBook Gross Profit Rate on Intra-Entity nventory Transfers Intra-Entity Ending Inventory at Transfer Price $ 8e,eee 125,8e8 168,8e8 Intra-Entity Print Year 2816 2817 Sales $ 125,808 228,8e8 38e,8e8 25 References Separate financial statements for these two companies as of December 31, 2018, follow: Cost of goods sold Depreciation expense Amortization expense Interest expense Equity in earnings of Sander $(1,748,88)(95e,808) 58e,808 85,808 128,8e8 828,808 184,808 228,8e8 28,8e Net income (7ee,808) (230,808) Retained earnings 1/1/18 Net income Dividends declared $(2,888,8) (345,88) (238,80e) 25,888 $ (55e,808) (789,808) 28e,ee8 Retained earnings 12/31/18 $(3,38e,808) Cash Accounts receivable Inventory Investment in Sander Buildings and equipment Patents $ 535,808 575,808 99a,808 1,428,888 1,825,888 95e,8ee 115,800 215,888 88e,8ee 863,8e0 187.8e Total assets $5,495,808 2,180,808 Accounts payable Notes payable Common stock Additional paid-in capital Retained earnings 12/31/18 s (458,888) (545,808) (98e,80e) (380,808) s (286,888) (458,808) (88e,80e) (189,808) (3.388,88)(558,898) $(2,18e,808) Total liabilities and stockholders' equity $(5,495,808) 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 Complete this question by entering your answers in the tabs below.

Explanation / Answer

Calculation of Goodwill Fair value of Sander's total business $1,500,000 Less: Book value $925,000 Excess of fair value over book value $575,000 Excess allocated to: Patent $350,000 Goodwill $225,000 Amortization of patent per year (350000/5) $70,000 Calculation of unrealized profit in unsold inventory 2016 Intra-entity ending inventory at transfer price 80000 Gross profit margin 25% Gross profit 20000 2017 Intra-entity ending inventory at transfer price 125000 Gross profit margin 28% Gross profit 35000 2018 Intra-entity ending inventory at transfer price 160000 Gross profit margin 25% Gross profit 40000 a Equity in Earnings of Sander account balance 2018 income reported by Sander $230,000 Excess patent fair value amortization ($70,000) Deferred gross profit for 12/31/2018 intra-entity inventory ($40,000) Recognized gross profit for 1/1/2018 intra-entity inventory $35,000 Sander's net income adjusted $155,000 To controlling interest $124,000 To noncontrolling interest $31,000 b Consolidation worksheet Consiolidation entries Accounts Plymouth Sander Debit Credit NCI Consolidated Totals Revenues ($1,740,000) ($950,000) ($2,690,000) Cost of goods sold $820,000 $500,000 $40,000 $35,000 $1,325,000 Depreciation expense $104,000 $85,000 $189,000 Amortization expense $220,000 $120,000 $70,000 $410,000 Interest expense $20,000 $15,000 $35,000 Equity in earnings of Sander ($124,000) $124,000 $0 Separate company net income ($700,000) ($230,000) Consolidated net income ($731,000) To noncontrolling interest ($31,000) ($31,000) To Plymouth Corp. ($700,000) Retained Earnings, 1/1 ($2,800,000) ($345,000) $380,000 ($2,765,000) Net income ($700,000) ($230,000) ($700,000) Dividends declared $200,000 $25,000 $20,000 $5,000 $200,000 Retained Earnings, 12/31 ($3,300,000) ($550,000) ($3,265,000) Cash $535,000 $115,000 $650,000 Accounts receivable $575,000 $215,000 $790,000 Inventory $990,000 $800,000 $40,000 $1,750,000 Investment in Sander $1,420,000 $1,420,000 $0 Building and Equipment $1,025,000 $863,000 $1,888,000 Patents $950,000 $107,000 $210,000 $70,000 $1,197,000 Goodwill $225,000 $225,000 Total assets $5,495,000 $2,100,000 $6,500,000 Accounts payable ($450,000) ($200,000) ($650,000) Notes Payable ($545,000) ($450,000) ($995,000) Non-controlling interest, 1/1 $364,000 $0 Non-controlling interest, 12/31 $390,000 ($390,000) Common Stock ($900,000) ($800,000) $800,000 ($900,000) APIC ($300,000) ($100,000) $100,000 ($300,000) Retained Earnings, 12/31 ($3,300,000) ($550,000) ($3,265,000) Total liabilities and SE ($5,495,000) ($2,100,000) $1,949,000 $1,949,000 ($6,500,000) Working Note: Recognized profit in intra-entity inventory 2017, journal entry Retained earnings, 1/1 $35,000 Cost of goods sold $35,000 NCI, 1/1/2018 Common Stock $800,000 APIC $100,000 Retained earnings, 1/1/2018 $345,000 Excess of fair value over book value $575,000 Total $1,820,000 NCI, 20% $364,000 NCI, 31/12/2018 NCI,1/1/2018 $364,000 Add: Profit for 2018 $31,000 Less: Dividend ($5,000) NCI, 31/12/2018 $390,000

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