ACC 405 Final Project One Scenario Posey Company

You are a financial accountant for Posey Company tasked with preparing consolidation documentation at year end. You have the following information:

December 31, 20X5

Posey Company acquired 90% of Stargell Corporations outstanding common stock for $1,116,900. Onthat date:

• The fair value of the noncontrolling interest was $124,100;

• Stargell reported common stock outstanding of $487,000, premium on common stock of

  $267,000, and retained earnings of $407,000; the book values and fair values of Stargells assetsand liabilities were equal except for land, which was worth $30,000 more than its book value.

  On April 1, 20X6

Posey issued at par $200,000 of 10% bonds directly to Stargell; interest on the bonds is payable March 31 and September 30.

On January 2, 20X7

Posey purchased all of Stargells outstanding 10-year, 12% bonds from an unrelated institutional investor at 98. The bonds originally had been issued on January 2, 20X1, for 101. Interest on the bonds is payable December 31 and June 30.

Since the date it was acquired by Posey

• Stargell has sold inventory to Posey on a regular basis. The amount of such intercompany sales totaled $67,000 in 20X6 and $83,000 in 20X7, including a 30% gross profit.

• All inventory transferred in 20X6 had been resold by December 31, 20X6, except inventory for which Posey had paid $18,000 and did not resell until January 20X7.

• All inventory transferred in 20X7 had been resold at December 31, 20X7, except merchandise for which Posey had paid $16,667.

  As of December 31, 20X7

• Stargell had declared but not yet paid its fourth-quarter dividend of $12,750.

• Both Posey and Stargell use straight-line depreciation and amortization, including the

  amortization of bond discount and premium.

• On December 31, 20X7, Poseys management reviewed the amount attributed to goodwill as a

  result of its purchase of Stargell common stock and concluded that an impairment loss in the amount of $25,000 had occurred during 20X7 and should be shared proportionately between the controlling and noncontrolling interests.

• Posey uses the fully adjusted equity method to account for its investment in Stargell.

On December 31, 20X7, trial balances for Posey and Stargell appeared as follows:

	Posey Company				Stargell Corporation
Item	Debit		Credit		Debit		Credit

Cash $ 49,500

Inventory 317,000

Investment in Stargell Bonds 985,000Land 1,241,000Cost of Goods Sold 1,829,000Other Expenses 632,000Accumulated Depreciation

Bonds Payable Common Stock Retained Earnings, January 1 Other Income Total $ 9,603,800

$

39,000 364,900

518,000 426,000 206,000

Current Receivables

121,500

90,100

Investment in Stargell Stock

1,243,800

Investment in Posey Bonds

200,000

Buildings and Equipment

2,940,000

1,915,000

Depreciation & Amortization

184,000

65,000

Dividends Declared

61,000

51,000

$

1,050,000 200,000 910,000

2,848,950 143,000 9,603,800

$

597,000 1,000,000 487,000 457,000 50,000 3,875,000

Current Payables

699,190

213,000

Premium on Bonds Payable

3,000

Premium on Common Stock

610,000

267,000

Sales

3,010,000

801,000

Income from Stargell Corp.

132,660

$

$

3,875,000

$