Case 2 - On January 1, 2020, James Company purchased

Case 2

On January 1, 2020, James Company purchased 100 percent of the outstanding voting stock of Nolan, Inc., for $1,000,000 in cash and other consideration. At the purchase date, Nolan had common stock of $500,000 and retained earnings of $185,000. James attributed the excess of acquisition-date fair value over Nolan's book value to a trade name with an estimated 25-year remaining useful life. James uses the equity method to account for its investment in Nolan.

During the next two years, Nolan reported the following:

Nolan sells inventory to James after a markup based on a gross profit rate. At the end of 2020 and 2021, 30 percent of the current year purchases remain in James's inventory.

Using the attached Excel template, compute the following:

1. The Equity Method balance in James' Investment in Nolan, Inc., account as of December 31, 2021

2. Worksheet adjustments for the December 31, 2021 adjustments of James and Nolan. Use the following Codes to designate the purpose of the journal entry:

Formulate your solution so that Nolan's gross profit rate on sales to James is treated as a variable.

 

Please fill out excel and show formula’s per each cell.

Step 1

Fair Value Allocation			1/1/20
Consideration Transferred
Common Stock
Retained Earnings
Tradename
Intra-entity Inventory Transfers (upstream)
	Sales	Inventory	Intra.Profit
2020
2021
Investment Account
Cost
2020 Equity Earnings
Dividends
12/31/2020 Balance
2021 Equity Earnings
Dividends
12/31/2021 Balance
Equity in Nolan Company Earnings
2020 Reported Net Income
EI Profit
Amortization
Equity Earnings
2021 Reported Net Income
BI Profit
EI Profit
Amortization
Equity Earnings

Step 2

Code	Account Title	Debit	Credit