On January 1, 2015, Pym Company acquired 75% interest in the common stock of Stark Company for $350,000 Stark had the following Balance Sheet on the date of acquisition: Assets (5) Accounts Receivable Inventory Land Buildings Accumulated Depreciation Equipment & Machinery Accumulated Depreciation Total Assets Stark Company Balance Sheet January 1, 2015 Liabilities (5) 40,000 Accounts Payable 20,000 Bonds Payable 35,000 Discount on Bonds Payable 250,000 Common Stock $10 par) (50,000 Paid-in Capital in Excess of Par 120,000 Retained Earnings (60,000 355,000 Total Liabilities 42,297 100,000 (2,297 10,000 90,000 115,000 355,000 Equipment (10 year life) are undervalued by $50,000. Any remaining excess is considered to be goodwill. Stark sold a piece of machinery to Pym for $30,000 on January 1, 2015. It cost Stark $20,000 to build the machinery, which has a 5 year remaining life on the date of the sale and is subject to straight-line depreciation. On January 1, 2017, Stark held merchandise acquired from Pym for $20,000. During 2017, Pym sold $60,000 worth of merchandise to Stark. Stark held $25,000 of this merchandise at December 31, 2017. Stark owed Pym $12,000 on December 31, 2017 as a result of these intercompany sales. Pym has a gross profit rate of 30%. On January 1, 2017, Pym held merchandise acquired from Stark for $10,000. During 2017, Stark sold $40,000 worth of merchandise to Pym. Pym held $6,000 of this merchandise at December 31, 2017. Pym owed Stark $11,000 on December 31, 2017 as a result of these intercompany sales. Stark has a gross profit rate of 25%. Stark issued $100,000 of 8%, 10 year bonds for $96,719 on January 1, 2012. Annual interest is paid on December 31. Pym purchased the bonds on January 1, 2016, for $100,930. Both companies use the straight-line method to amortize the premium/discount on the bonds. Pym and Stark used the following bond amortization schedules: Pym Cash (5) Period Stark Cash ($) Interest IS Balance Period Balance Interest (5) (5) S) Jan 1, 2012 Jan 1, 2013 Jan 1, 2014 Jan 1, 2015 Jan 1, 2016 Jan 1, 2017 Jan 1, 2018 Jan 1, 2019 Jan 1, 2020 Jan 1, 2021 Jan 1, 2022 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,328 8,328 8,328 8,328 8,328 8,328 8,328 8,328 8,328 8,328 96,719 Jan 1, 2012 97,047 Jan 1, 2013 97,375 Jan 1, 2014 97,703 Jan 1, 2015 98,031 Jan 1, 2016 98,359 Jan 1, 2017 98,687 Jan 1, 2018 99,015 Jan 1, 2019 99,343 Jan 1, 2020 99,671 Jan 1, 2021 100,000 Jan 1, 2022 8,000 8,000 8,000 8,000 8,000 8,000 100,930 7,845 100,775 7,845 100,620 7,845 100,465 7.845 100,310 7,845 100,155 7,845100,000 Pym and Stark had the following trial balances on December 31, 2017: Stark 61,031 60,000 45,000 45,000 Pym 103,444 110,000 120,000 150,000 401,341 100,620 500,000 (330,000) 200,000 (115,000 (35,000 Balances Cash Accounts Receivable Inventory Land Investment in Stark, Investment in Stark Bonds Buildings Accumulated Depreciation Equipment & Machinery Accumulated Depreciation Accounts Payable Bonds Payable Discount on Bonds Payable Common Stock Paid-In Capital in Excess of Par Retained Earnings, January 1 Sales Cost of Goods Sold Depreciation Expense - Buildings Depreciation Expense - Equipment & Machinery Other Expenses Interest Revenue Interest Expense Subsidiary Income Dividends Declared Total (100,000) (600,000 (442,223) 700,000) 480,000 30,000 15,000 125,000 (7,845) 250,000 (80,000 120,000 (96,000) (25,000) (100,000 1,313 (10,000) (90,000 (159,672) (230,000 125,000 10,000 12,000 43,000 8,328 (25,337 20,000 10,000 page 3 Required: 1) Which method is being used by Pym to account for its investment in Stark? Provide one reason to justify your selection in) Prepare the Eliminating and Adjusting Entries, Prepve the schedules and worksheet necessary to produce the consolidated financial statements of Pym Company and its subsidiary for the year ended December 31, 2017 On January 1, 2015, Pym Company acquired 75% interest in the common stock of Stark Company for $350,000 Stark had the following Balance Sheet on the date of acquisition: Assets (5) Accounts Receivable Inventory Land Buildings Accumulated Depreciation Equipment & Machinery Accumulated Depreciation Total Assets Stark Company Balance Sheet January 1, 2015 Liabilities (5) 40,000 Accounts Payable 20,000 Bonds Payable 35,000 Discount on Bonds Payable 250,000 Common Stock $10 par) (50,000 Paid-in Capital in Excess of Par 120,000 Retained Earnings (60,000 355,000 Total Liabilities 42,297 100,000 (2,297 10,000 90,000 115,000 355,000 Equipment (10 year life) are undervalued by $50,000. Any remaining excess is considered to be goodwill. Stark sold a piece of machinery to Pym for $30,000 on January 1, 2015. It cost Stark $20,000 to build the machinery, which has a 5 year remaining life on the date of the sale and is subject to straight-line depreciation. On January 1, 2017, Stark held merchandise acquired from Pym for $20,000. During 2017, Pym sold $60,000 worth of merchandise to Stark. Stark held $25,000 of this merchandise at December 31, 2017. Stark owed Pym $12,000 on December 31, 2017 as a result of these intercompany sales. Pym has a gross profit rate of 30%. On January 1, 2017, Pym held merchandise acquired from Stark for $10,000. During 2017, Stark sold $40,000 worth of merchandise to Pym. Pym held $6,000 of this merchandise at December 31, 2017. Pym owed Stark $11,000 on December 31, 2017 as a result of these intercompany sales. Stark has a gross profit rate of 25%. Stark issued $100,000 of 8%, 10 year bonds for $96,719 on January 1, 2012. Annual interest is paid on December 31. Pym purchased the bonds on January 1, 2016, for $100,930. Both companies use the straight-line method to amortize the premium/discount on the bonds. Pym and Stark used the following bond amortization schedules: Pym Cash (5) Period Stark Cash ($) Interest IS Balance Period Balance Interest (5) (5) S) Jan 1, 2012 Jan 1, 2013 Jan 1, 2014 Jan 1, 2015 Jan 1, 2016 Jan 1, 2017 Jan 1, 2018 Jan 1, 2019 Jan 1, 2020 Jan 1, 2021 Jan 1, 2022 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,328 8,328 8,328 8,328 8,328 8,328 8,328 8,328 8,328 8,328 96,719 Jan 1, 2012 97,047 Jan 1, 2013 97,375 Jan 1, 2014 97,703 Jan 1, 2015 98,031 Jan 1, 2016 98,359 Jan 1, 2017 98,687 Jan 1, 2018 99,015 Jan 1, 2019 99,343 Jan 1, 2020 99,671 Jan 1, 2021 100,000 Jan 1, 2022 8,000 8,000 8,000 8,000 8,000 8,000 100,930 7,845 100,775 7,845 100,620 7,845 100,465 7.845 100,310 7,845 100,155 7,845100,000 Pym and Stark had the following trial balances on December 31, 2017: Stark 61,031 60,000 45,000 45,000 Pym 103,444 110,000 120,000 150,000 401,341 100,620 500,000 (330,000) 200,000 (115,000 (35,000 Balances Cash Accounts Receivable Inventory Land Investment in Stark, Investment in Stark Bonds Buildings Accumulated Depreciation Equipment & Machinery Accumulated Depreciation Accounts Payable Bonds Payable Discount on Bonds Payable Common Stock Paid-In Capital in Excess of Par Retained Earnings, January 1 Sales Cost of Goods Sold Depreciation Expense - Buildings Depreciation Expense - Equipment & Machinery Other Expenses Interest Revenue Interest Expense Subsidiary Income Dividends Declared Total (100,000) (600,000 (442,223) 700,000) 480,000 30,000 15,000 125,000 (7,845) 250,000 (80,000 120,000 (96,000) (25,000) (100,000 1,313 (10,000) (90,000 (159,672) (230,000 125,000 10,000 12,000 43,000 8,328 (25,337 20,000 10,000 page 3 Required: 1) Which method is being used by Pym to account for its investment in Stark? Provide one reason to justify your selection in) Prepare the Eliminating and Adjusting Entries, Prepve the schedules and worksheet necessary to produce the consolidated financial statements of Pym Company and its subsidiary for the year ended December 31, 2017