Refer to the preceding facts for Purple’s acquisition of Salmon common stock. On January 1, 2013, Salmon held merchandise sold to it from Purple for $12,000. This beginning inventory had an applicable gross profit of 35%. During 2013, Purple sold merchandise to Salmon for $55,000. On December 31, 2013, Salmon held $10,000 of this merchandise in its inventory. This ending inventory had an applicable gross profit of 40%. Salmon owed Purple $7,500 on December 31 as a result of this intercompany sale.
Purple held $16,000 worth of merchandise in its January 1, 2013, inventory from sales from Salmon. This beginning inventory had an applicable gross profit of 30%. During 2013, Salmon sold merchandise to Purple for $35,000. Purple held $20,000 of this inventory at the end of the year. This ending inventory had an applicable gross profit of 35%. Purple owed Salmon $5,000 on December 31 as 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, 2013:
1. Prepare a value analysis and a determination and distribution of excess schedule for the investment in Salmon.
2. Complete a consolidated worksheet for Purple Company and its subsidiary Salmon Company as of December 31, 2013. Prepare supporting amortization and income distribution schedules.