Question: On January 1, 2014, Palmer Company acquired
On January 1, 2014, Palmer Company acquired a 90% interest in Stevens Company at a cost of $1,000,000. At the purchase date, Stevens Company’s stockholders’ equity consisted of the following:
Common stock ……………. $500,000
Retained earnings ……………190,000
An examination of Stevens Company’s assets and liabilities revealed the following at the date of acquisition:
Additional Information—Date of Acquisition
Stevens Company’s equipment had an original life of 15 years and a remaining useful life of 10 years. All the inventory was sold in 2014. Stevens Company purchased its bonds payable on the open market on January 10, 2014, for $150,000 and recognized a gain of $55,556. Palmer Company uses the complete equity method to record its investment in Stevens Company. Financial statement data for 2016 are presented on the next page.
Required:
A. Prepare in general journal form the workpaper entry to allocate and depreciate the difference between book value and the value implied by the purchase price in the December 31, 2014, consolidated statements workpaper.
B. Prepare a consolidated financial statements workpaper for the year ended December 31, 2016.
C. Prepare in good form a schedule or t-account showing the calculation of the controlling interest in consolidated net income for the year ended December 31, 2016.
If you completed Problem 5-5 and Problem 5-12, a comparison of the consolidated balances in this problem with those you obtained in Problem 5-5 and Problem 5-12 will demonstrate that the method (cost, partial equity, or complete equity) used by the parent company to record its investment in a consolidated subsidiary has no effect on the consolidated balances.
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Book value Fair Value $ 90726 $ 90,726 Cash Accounts receivable 200p00 200,000 Inventories 160000 210,000 Equipment Accumulated deprociation-equipment 300p00 390,000 (100,000) (130,000) Land 190p00 290,000 Bonds payable (205,556) (150,000) Other 54,830 S690000 54,830 Total $955,556 Palmer Company Stevens Company Saks $ 620,000 $340,000 Cost of saks 430,000 240,000 Gross margin 190,000 100,000 De preciation a pene 30,000 20,000 Other apenses Income from operations 60,000 35,000 100,000 45,000 Equity in subsidiary income 35,100 $ 45,000 Net income 135,100 1/1 Retained carnings $ 209,800 $210,000 Net income 135,100 45,000 344,900 255,000 Dividends (120,000) $ 224,900 (35,000) $220,000 12/31 Retained carnings Palmer Company Stevens Company $ 201,200 Cash S151,000 Accounts reccivable 221,000 173,000 Inventories 100,400 81,000 Investment in Stevens Company 915,800 Equipment 450,000 300,000 Accumulated depreciation equipment (300,000) 360,000 (140,000) Land 290,000 Total assets $1.948,400 $ 323,500 S855,000 Accounts payable $135,000 Bonds payable 400,000 Common stock 1,000,000 S00,000 Retained carnings 224,900 220,000 Total liabilities and equity $1.948,400 S855,000
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