Posted: March 1st, 2014

On January 1, 2011, Purple Company acquired Salmon Company. Purple paid $300,000 for 80% of Salmon's common stock. On the date of acquisition, Salmon had the following balance sheet: Assets Liabilities and Equity

On January 1, 2011, Purple Company acquired Salmon Company. Purple paid $300,000 for 80% of Salmon’s common stock. On the date of acquisition, Salmon had the following balance sheet:
Assets Liabilities and Equity
Accounts receivable $50,000 Accounts payable $60,000
Inventory 60,000 Bonds payable 200,000
Land 100,000 Common stock($1par) 10,000
Buildings 150,000 Paid-in capital in excess of par 90,000
Accumulated depreciation (50,000) Retained earnings 60,000
Equipment 100,000
Accumulated depreciation (30,000)
Goodwill 40,000
total assets $420,000 Total liabilities and equity $420,000
80% equity, several excess distribution, inventory, fixed assets, parent and subsidiary sales.
Refer to the proceeding facts for Purple’s acquisition of Salmon common stock. On January 1, 2012 Salmon held merchandise sold to it by Purple for $14,000. This beginning inventory had applicable gross profit of 40%. During 2012, Purple sold merchandise to Salmon for $60,000. On December 31, 2012, Salmon held $12,000 of this merchandise in its inventory. This ending inventory had an applicable gross profit of 35%. Salmon owed Purple $8,000 on December 31 as a result of this intercompany sale.
Purple held $12,000 worth of merchandise in its beginning inventory from sales from Salmon. This beginning inventory had an applicable gross profit of 25%. During 2012 Salmon sold merchandise to Purple for $30,000. Purple held $16,000 of its inventory at the end of the year. this ending inventory had an applicable gross profit of 30%. Purple owed Salmon $6,000 on December 31as a result of this intercompany sale.
On January 1, 2011, Purple sold equipment to Salmon at a profit of $40,000. Depreciation on this equipment is computed over an 8-year life using the straight-line method.
On January 1, 2012, Salmon sold equipment with a book value of $30,000 to Purple for $54,000. This equipment has a 6-year life and is depreciated using the straight-line method.
Purple and Salmon had the following trial balances on December 31, 2012:

Purple Salmon
cash 92,400 57,500
accounts receivable 130,000 36,000
inventory 105,000 76,000
land 100,000 100,000
investment in Salmon company 381,200
buildings 800,000 150,000
accumulated depreciation (250,000) (60,000)
equipment 210,000 220,000
accumulated depreciation (115,000) (80,000)
goodwill 40,000
accounts payable (70,000) (78,000)
bonds payable (200,000)
common stock (100,000) (10,000)
paid-in capital in excess of par (800,000) (90,000)
retained earnings, January 1, 2012 (325,000) (142,000)
sales (800,000) (350,000)
cost of goods sold 450,000 208,500
depreciation expense-buildings 30,000 5,000
depreciation expense-equipment 25,000 23,000
other expenses 140,000 92,000
interest expense 16,000
gain on sale of fixed asset (24,000)
subsidiary income (23,600)
dividends declared 20,000 10,000
totals 0 0
1. Prepare a value analysis and determination and distribution of excess schedule for the investment in Salmon.

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