Question: Plessor Industries acquired 80% of the outstanding
Plessor Industries acquired 80% of the outstanding common stock of Slammer Company on January 1, 2015, for $320,000. On that date, Slammer’s book values approximated fair values, and the balance of its retained earnings account was $80,000. Any excess was attributed to goodwill. Slammer’s net income was $20,000 for 2015 and $30,000 for 2016. No dividends were paid in either year.
On January 1, 2016, Slammer signed a 5-year lease with Plessor for the rental of a small factory building with a 10-year life. Payments of $25,000 are due at the beginning of each year on January 1, and Slammer is expected to exercise the $5,000 bargain purchase option at the end of the fifth year. The fair value of the factory was $103,770 at the start of the lease term. Plessor’s implicit rate on the lease is 12%.
A second lease agreement, for the rental of production equipment with an 8-year life, was signed by Slammer on January 1, 2017. The terms of this 4-year lease require a payment of $15,000 at the beginning of each year on January 1. The present value of the lease payments at Plessor’s 12% implicit rate was equal to the fair value of the equipment, $52,298, when the lease was signed. The cost of the equipment to Plessor was $45,000, and there is a $2,000 bargain purchase option. Eight-year, straight-line depreciation is being used, with no salvage value.
The following trial balances were prepared by the separate companies at December 31, 2017:
Required
Prepare the worksheet necessary to produce the consolidated financial statements of Plessor Industries and its subsidiary for the year ended December 31, 2017. Include the determination and distribution of excess and income distribution schedules.
Transcribed Image Text:
Plessor Slammer Industries Company 40,745 76,000 120,000 Cash 60,000 97,778 140,000 127,000 Accounts Receivable Inventory . Minimum Lease Payments Receivable (14,417) 320,000 Unearned Interest Income . Investment in Slammer Company Assets Under Capital Lease . Accumulated Depreciation-Assets Under Capital Lease Property, Plant, and Equipment.. Accumulated Depreciation-Property, Plant, and Equipment.. Accounts Payable (includes accrued interest payable) . Obligations Under Capital Lease Common Stock ($10 par) Paid-In Capital in Excess of Par Retained Earnings, January 1, 2017. 156,068 (27,291) 310,000 (72,000) (45,065) (100,520) (300,000) 1,900,000 (1,077,000) (148,000) (700,000) (325,000) (295,000) (1,400,000) (600,000) (7,298) (130,000) Sales Sales Profit on Leases. Interest Income.. Cost of Goods Sold (12,063) 780,000 Interest Expense. Other Expenses 380,000 12,063 165,000 510,000 (12,000) 56,000 Dividend Income Dividends Declared. 15,000 Totals
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