Alternative Ways to Transfer Asset to Subsidiary Case Pannier Company is the parent company that owns an 80% interest in Jodestor Company. The interestwas acquired at book value, and the simple equity method is used to record the ownership interest. The trial balances of the two companies on December 31, 2016, were as follows: Pannier Jodestor Company Company Cash ................................................ 258,000 100,000 Inventory ............................................. 150,000 40,000 Other CurrentAssets .................................... 50,000 160,000 Investment in Jodestor ................................... 316,000 Plant and Equipment .................................... 650,000 500,000 Accumulated Depreciation ............................... [300,000] (200,000) Current Liabilities ....................................... (40,000] (5,000] Long-Term Debt ........................................ (200,000} Common Stock [par] .................................... (300,000) (100,000) Retained Earnings ...................................... (746,000) (285,000} Sales ................................................ (1 50,000] (170,000) Cost of Goods Sold ..................................... 90,000 130,000 Expenses ............................................. 30,000 10,000 Interest Expense ........................................ 20,000 Subsidiary Income ...................................... (8,000] Totals .............................................. 0 0 As the year ended, Pannier was planning to transfer a maior piece of equipment to Jodestor. The equipment was just purchased by Pannier and is included in its inventory account. The equipment cost Pannier $100,000 and would be transferred to Jodestor For $125,000. There are two options as follows: a. Sell the equipment to Jodestar for $125,000 and finance it with a 5-year, 10% interest installment note. b. Lease the equipment to Jodestar on a 5-year lease requiring payments of $29,977 in advance. 1 . Make the iournal entries For both companies it the intercompany sale was consummated on 1 4 4 4 4 December 31 . b. Lease tne eqUIpment to Joaestar on a 5-year lease requmng payments or 319,511 In advance. l . Make the journal entries For both companies it the intercompany sale was consummated on 1 1 1 1 1 R f December 31 . 2. Prepare a consolidated income statement and balance sheet For the company for 2016. (Note: The effect of the equipment sale is not included in the trial balance.) 3. Make the journal entries for both companies it the intercompany lease was executed on December 3] . 4. It the lease were used, how would the consolidated statements differ from those in part (2)
