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. Required Create an Excel spreadsheet that computes the following: 1. Equity method balance in James’s Investment in Nolan, Inc., account as of December 31, 2021. 2. Worksheet adjustments for the December 31, 2021, consolidation of James and Nolan. Formulate your solution so that Nolan’s gross profit rate on sales to James is treated as a variable.