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December 31, 20X5 Posey Company acquired 90% of Stargell Corporation's outstanding common stock for $1,116,900. On that 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 Stargell's assets and liabilities were equal except for land, which was worth $30,000 more than its book value. V 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 Stargell's 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, Posey's management reviewed the amount attributed to goodwill 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. as a On December 31, 20X7, trial balances for Posey and Stargell appeared as follows: Stargell Corporation Posey Company Debit Credit Debit Credit Item Cash S 49,500 39,000 Current Receivables 121,500 90,100 Inventory 317,000 364,900 Investment in Stargell Stock 1,243,800 Investment in Stargell Bonds 985,000 Investment in Posey Bonds 200,000 Land 518,000 1,915,000 1,241,000 Buildings and Equipment 2,940,000 Cost of Goods Sold 426,000 1,829,000 Depreciation & Amortization 184,000 65,000 Other Expenses 632,000 206,000 Dividends Declared 61,000 51,000 Accumulated Depreciation S 597,000 1,050,000 Current Payables 699,190 213,000 Bonds Payable 200,000 1,000,000 Premium on Bonds Payable 3,000 Common Stock 910,000 487,000 Premium on Common Stock 610,000 267,000 Retained Earnings, January 1 457,000 2,848,950 Sales 3,010,000 801,000 Other Income 143,000 50,000 Income from Stargell Corp. 132,660 Total S S 3,875,000 9,603,800 9,603,800 3,875,000 POSEY MANUFACTURING COMPANY AND SUBSIDIARY Consolidated Financial Statement Worksheet December 31, 20X7 Consolidation Entries Stargell Corp. Consolidated Posey Co. DR CR Income Statement Sales Other Income Less: COGS Less: Depr. & Amort. Expense Less: Other Expenses Goodwill Impairment Loss Gain on Bond Retirement Income from Stargell Corp Consolidated Net Income NCI in Net Income Controlling Interest in NI Statement of Retained Earnings Beginning Balance Net Income Less: Dividends Declared Ending Balance Balance Sheet Assets Cash Current Receivables Inventory Land Buildings & Equipment Less: Accumula ted Depreciation Investment in Stargell Stock Investment in Stargell Bonds Investment in Posey Bonds Investment in Posey Bonds Goodwill Total Assets Liabilities & Equity Current Payables Bonds Payable Premium on Bonds Payable Common Stock Premium on Common Stock Retained Earnings NCI in NA of Stargell Corp Total Liabilities & Equity December 31, 20X5 Posey Company acquired 90% of Stargell Corporation's outstanding common stock for $1,116,900. On that 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 Stargell's assets and liabilities were equal except for land, which was worth $30,000 more than its book value. V 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 Stargell's 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, Posey's management reviewed the amount attributed to goodwill 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. as a On December 31, 20X7, trial balances for Posey and Stargell appeared as follows: Stargell Corporation Posey Company Debit Credit Debit Credit Item Cash S 49,500 39,000 Current Receivables 121,500 90,100 Inventory 317,000 364,900 Investment in Stargell Stock 1,243,800 Investment in Stargell Bonds 985,000 Investment in Posey Bonds 200,000 Land 518,000 1,915,000 1,241,000 Buildings and Equipment 2,940,000 Cost of Goods Sold 426,000 1,829,000 Depreciation & Amortization 184,000 65,000 Other Expenses 632,000 206,000 Dividends Declared 61,000 51,000 Accumulated Depreciation S 597,000 1,050,000 Current Payables 699,190 213,000 Bonds Payable 200,000 1,000,000 Premium on Bonds Payable 3,000 Common Stock 910,000 487,000 Premium on Common Stock 610,000 267,000 Retained Earnings, January 1 457,000 2,848,950 Sales 3,010,000 801,000 Other Income 143,000 50,000 Income from Stargell Corp. 132,660 Total S S 3,875,000 9,603,800 9,603,800 3,875,000 POSEY MANUFACTURING COMPANY AND SUBSIDIARY Consolidated Financial Statement Worksheet December 31, 20X7 Consolidation Entries Stargell Corp. Consolidated Posey Co. DR CR Income Statement Sales Other Income Less: COGS Less: Depr. & Amort. Expense Less: Other Expenses Goodwill Impairment Loss Gain on Bond Retirement Income from Stargell Corp Consolidated Net Income NCI in Net Income Controlling Interest in NI Statement of Retained Earnings Beginning Balance Net Income Less: Dividends Declared Ending Balance Balance Sheet Assets Cash Current Receivables Inventory Land Buildings & Equipment Less: Accumula ted Depreciation Investment in Stargell Stock Investment in Stargell Bonds Investment in Posey Bonds Investment in Posey Bonds Goodwill Total Assets Liabilities & Equity Current Payables Bonds Payable Premium on Bonds Payable Common Stock Premium on Common Stock Retained Earnings NCI in NA of Stargell Corp Total Liabilities & Equity