Consolidated income statement, affiliated firm for tax. On January 1, 2015, Dawn Corporation exchanges 12,000 shares of its common stock for an 80% interest in Mercer Company. The stock issued has a par value of $10 per share and a fair value of $25 per share. On the date of purchase, Mercer has the following balance sheet:
On the purchase date, Mercer has equipment with an 8-year remaining life that is undervalued by $100,000. Any remaining excess cost is attributed to goodwill.
There are intercompany merchandise sales. During 2016, Dawn sells $20,000 of merchandise to Mercer. Mercer sells $30,000 of merchandise to Dawn. Mercer has $2,000 of Dawn goods in its beginning inventory and $4,200 of Dawn goods in its ending inventory.
Dawn has $2,500 of Mercer goods in its beginning inventory and $3,000 of Mercer goods in its ending inventory. Dawn’s gross profit rate is 40%; Mercer’s is 25%.
Prepare a determination and distribution of excess schedule. Prepare the 2016 consolidated net income in schedule form. Include eliminations and adjustments. Provide income distribution schedules to allocate consolidated net income (after tax) to the controlling and noncontrolling interests.