On January 1, 2014, Packard Company acquired an 80% interest in the common stock of Stack Company for $350,000. Stack had the following Balance Sheet on the date of acquisition: Buildings ( 20 year life) are undervalued by $75,000. Any remaining excess is considered to be goodwill. Stark sold a piece of equipment to Packard for $30,000 on January 1, 2014. It cost Stark $20,000 to build the equipment, which has a 5 year remaining life on the date of the sale and is subject to straight-line depreciation. On January 1, 2016, Stack held merchandise acquire from Packard for $20,000. During 2016, Packard sold $60,000 worth of merchandise to Stack. Stack held $25,000 of this merchandise at December 31 , 2016. Stack owed Packard $12,000 on December 31,2016 as a result of these intercompany sales. Packard has a gross profit rate of 30%. Stack issued $100,000 of 8%,10 year bonds for $96,719 on January 1,2011 . Annual interest is paid on December 31. Packard purchased the bonds on January 1,2015 , for $100,930. Both companies use the straight-line method to amortize the premium/discount on the bonds. Packard and Stack used the following bond amortization schedules: Packard and Stack had the following trial balances on December 31, 2016: 1) Which method is being used by Parkard to account for its investment in Stack? Provide one reason to justify your selection. ( 2 marks) ii) Prepare the Eliminating and Adjusting Entries, complete the schedules and worksheet necessary to produce the consolidated financial statements of Parkard Company and its subsidiary for the year ended December 31, 2016. (Provided in Attachments 1 \& 2) (28 marks) On January 1, 2014, Packard Company acquired an 80% interest in the common stock of Stack Company for $350,000. Stack had the following Balance Sheet on the date of acquisition: Buildings ( 20 year life) are undervalued by $75,000. Any remaining excess is considered to be goodwill. Stark sold a piece of equipment to Packard for $30,000 on January 1, 2014. It cost Stark $20,000 to build the equipment, which has a 5 year remaining life on the date of the sale and is subject to straight-line depreciation. On January 1, 2016, Stack held merchandise acquire from Packard for $20,000. During 2016, Packard sold $60,000 worth of merchandise to Stack. Stack held $25,000 of this merchandise at December 31 , 2016. Stack owed Packard $12,000 on December 31,2016 as a result of these intercompany sales. Packard has a gross profit rate of 30%. Stack issued $100,000 of 8%,10 year bonds for $96,719 on January 1,2011 . Annual interest is paid on December 31. Packard purchased the bonds on January 1,2015 , for $100,930. Both companies use the straight-line method to amortize the premium/discount on the bonds. Packard and Stack used the following bond amortization schedules: Packard and Stack had the following trial balances on December 31, 2016: 1) Which method is being used by Parkard to account for its investment in Stack? Provide one reason to justify your selection. ( 2 marks) ii) Prepare the Eliminating and Adjusting Entries, complete the schedules and worksheet necessary to produce the consolidated financial statements of Parkard Company and its subsidiary for the year ended December 31, 2016. (Provided in Attachments 1 \& 2) (28 marks)
