Problem 3-10_100%, cost method worksheet, several adjustments, third year_Answer

Problem 3-10 (LO 3, 5) 100%, cost method worksheet, several adjustments, third
year. Refer to the preceding information for Paulcraft’s acquisition of Switzer’s common
stock. Assume that Paulcraft pays $480,000 for 100% of Switzer common stock. Paulcraft uses
the cost method to account for its investment in Switzer. Paulcraft and Switzer have the following
trial balances on December 31, 2013 as shown on page 191.

Paulcraft Switzer
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 110,000
Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000 55,000
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000 86,000
Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 60,000
Investment in Switzer . . . . . . . . . . . . . . . . . . . . . . . . . . 480,000
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800,000 250,000
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . .(220,000) (80,000)
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .150,000 100,000
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . (90,000) (72,000)
Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (60,000) (102,000)
Bonds Payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (100,000)
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (100,000) (10,000)
Paid-In Capital in Excess of Par . . . . . . . . . . . . . . . . . . . . . . (900,000) (90,000)
Retained Earnings, January 1, 2013. . . . . . . . . . . . . . . . . . . .(315,000) (182,000)
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (800,000) (350,000)
Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450,000 210,000
Depreciation Expense—Buildings . . . . . . . . . . . . . . . . . . . . . . . 30,000 15,000
Depreciation Expense—Equipment. . . . . . . . . . . . . . . . . . . . . . .15,000 14,000
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,000 68,000
Interest Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000
Dividend Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,000)
Dividends Declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20,000 10,000
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0
1. Prepare a value analysis and a determination and distribution of excess schedule for the investment in Switzer.
2. Complete a consolidated worksheet for Paulcraft Corporation and its subsidiary Switzer
Corporation as of December 31, 2013. Prepare supporting amortization and income distribution schedules.

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Assume that Paulcraft pays $480,000 for 100% of Switzer common stock. Paulcraft uses the cost method to account Answer