Distribution of excess schedule for the investment

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Reference no: EM131291846

On January 1, 2014, DeSpain Company acquired Lawrence Corporation, a company that manufactures small medical parts. DeSpain paid $440,000 cash in exchange for 80% of Lawrence’s common stock. On the date of acquisition, Lawrence had the following balance sheet:

Lawrence Corporation Balance Sheet January 1, 2014

Assets

Accounts Receivable 82,000

Inventory 40,000

Land 60,000

Buildings 200,000 Accumulated Depreciation (50,000)

Equipment 100,000 Accumulated Depreciation (30,000)

Total Assets 402,000

Liabilities and Equity

Current Liabilities?90,000

Bonds Payable?100,000

Common Stock ($1 par) 10,000

Paid-in-Capital in excess of par 90,000

Retained Earnings 112,000

Total Liabilities and Equity 402,000

At the time of the acquisition, the fair value of Lawrence’s Corporation based on the market value of Lawrence’s stock was $550,000. DeSpain Company requested that an appraisal be done to determine whether the book value of Lawrence’s net assets reflect their fair values. Appraisal values for identifiable assets and liabilities are as follows:

Accounts Receivable 82,000

Inventory (sold during 2014) 38,000

Land?150,000

Building (20-year life) 280,000

Equipment (5-year life) 100,000

Current Liabilities?90,000

Bonds Payable (5-year life) 96,000

Any remaining excess is attributed to goodwill.

DeSpain Company uses the equity method to account for its investment in Lawrence Corporation. DeSpain Company and Lawrence Corporation have the following trial balances on December 31, 2016:

DeSpain Lawrence

Cash?138,000 110,000

Accounts Receivable?90,000 55,000

Inventory?120,000 86,000

Land?100,000 60,000

Investment in Lawrence?444,080 0

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?0 (100,000)

Common Stock? (100,000) (10,000)

Paid-in-Capital in excess of Par (900,000) (90,000)

Retained Earnings, January 1, 2016 (309,720) (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?0 8,000

Subsidiary Income?(17,360) 0

Dividends Declared 20,000 10,000

Totals 0 0

Required:?1) Prepare a value analysis and a determination and distribution of excess schedule for the investment in Lawrence Corporation as of January 1, 2014. Prepare any additional schedules if required.

2) Prepare consolidation entries (S,A,I,D,E) for DeSpain Company for the year ended December 31, 2016.

Reference no: EM131291846

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