Prepare the consolidated net income in schedule form

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Reference no: EM13952738

Consolidated income statement, af?liated ?rm for tax. On January 1, 20X1, Delta Corporation exchanges 12,000 shares of its common stock for an 80% interest in Morgan Company. The stock issued has a par value of $10 per share and a fair value of $20 per share. On the date of purchase, Morgan has the following balance sheet:

Common stock ($2 par)	$ 20,000
Paid-in capital in excess of par	50,000
Retained earnings	100,000
Total equity	$170,000

On the purchase date, Morgan has equipment with an 8-year remaining life that is underva- lued by $20,000. Any remaining excess cost is attributed to goodwill.

There are intercompany merchandise sales. During 20X2, Delta sells $20,000 of merchandise to Morgan. Morgan sells $30,000 of merchandise to Delta. Morgan has $2,000 of Delta goods in its beginning inventory and $4,200 of Delta goods in its ending inventory. Delta has $2,500 of Morgan goods in its beginning inventory and $3,000 of Morgan goods in its ending inventory. Delta's gross pro?t rate is 40%; Morgan's is 25%.

On July 1, 20X1, Delta sells a machine to Morgan for $90,000. The book value of the machine on Delta's books is $50,000 at the time of the sale. The machine has a 5-year remain- ing life. Depreciation on the machine is included in expenses.

The consolidated group meets the requirements of an af?liated group under the tax law and ?les a consolidated tax return. The original purchase is not structured as a nontaxable exchange. Delta uses the cost method to record its investment in Morgan. Since Morgan has never paid dividends, Delta has not recorded any income on its investment in Morgan. The two companies prepare the following income statements for 20X2:

	Delta Corporation	Morgan Company
Sales	$1,000,000	$600,000
Less cost of goods sold	800,000	375,000
Gross pro?t	$ 200,000	$225,000
Less expenses	80,000	185,000
Income before tax	$ 120,000	$ 40,000

Prepare a determination and distribution of excess schedule. Prepare the 20X2 consolidated net income in schedule form. Include eliminations and adjustments. Provide income distribution schedules to allocate consolidated net income to the controlling and noncontrolling interests.

Reference no: EM13952738

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