Advanced Accounting 11th Edition by Paul Fischer,William Tayler, Rita Cheng

Exercise 13

Equity income with intercompany profits. Spancrete Corporation acquires a 30% interest in the outstanding stock of Werl Corporation on January 1, 2015. At that time, the following determination and distribution of excess schedule is prepared:
During 2015, Spancrete purchases $200,000 of goods fromWerl. $20,000 of these purchases are in the December 31, 2015, ending inventory. During 2016, Spancrete purchases $250,000 of goods from Werl. $30,000 of these purchases are in the December 31, 2016, ending inventory. Werl's gross profit rate is 30%. Also, Spancrete purchases a machine from Werl for $15,000 on January 1, 2016. The machine has a book value of $10,000 and a 5-year remaining life. Werl reports net income of $90,000 and pays $20,000 on dividends during 2016.
Prepare an income distribution schedule for Werl, and record the entries to adjust the investment inWerl for 2016 using the equity method.