September 2023 On January 1 20×1 Powers Company acquired 80 of the common stock of Sculley Company for 195 000

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On January 1 20×1 Powers Company acquired 80 of the common stock of Sculley Company for 195 000 2023

On January 1, 20×1, 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, 20×2 Sculley borrowed $100,000 from Powers with a 10% 1-year note; interest is due at maturity. On January 1, 20×2, Powers held merchandise acquired from Sculley for $10,000. During 20×2, Sculley sold the merchandise to Powers for $50,000, $20,000 of which is still held by Powers on December 31, 20×2. Sculley’s usual gross profit on affiliated sales is 50% On December 31, 20×1, Powers sold equipment to Sculley at a gain of $10,000. During 20×2, 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 20×1 and 20×2, 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, 20×2. d. Prepare, in good format, consolidated financial statements for the year including the income statement and balance sheet ended December 31, 20×2.

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