Overview 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 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. 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 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 Debit Credit 49,500 121,500 317,000 1,243,800 985,000 Stargell Corporation Debit Credit 39,000 90,100 364,900 Item Cash Current Receivables Inventory Investment in Stargell Stock Investment in Stargell Bonds Investment in Posey Bonds Land Buildings and Equipment Cost of Goods Sold Depreciation & Amortization Other Expenses Dividends Declared Accumulated Depreciation Current Payables Bonds Payable Premium on Bonds Payable Common Stock Premium on Common Stock Retained Earnings, January 1 Sales Other Income Income from Stargell Corp. Total 1,241,000 2,940,000 1,829,000 184,000 632,000 61,000 200,000 518,000 1,915,000 426,000 65,000 206,000 51,000 $ 1,050,000 699,190 200,000 597,000 213,000 1,000,000 3,000 910,000 610,000 2,848,950 3,010,000 143,000 132,660 9,603,800 487,000 267,000 457,000 801,000 50,000 $ 9,603,800 $ $ 3,875,000 $ 3,875,000 3 Required: 4 a. Compute the amount of the goodwill as of January 1, 20x7. 6 Goodwill at acquisition Goodwill as of January 1, 20X7: fair value consideration fair value of noncontrolling interest book value of net assets at acq. differential at acquisiton increase in fair value of land Goodwill at acquisition 1,116,900 124,100 1,241,000 1,161,000 80,000 (30,000) 50,000 b. Compute the balance of Posey's Investment in Stargell Stock account as of January 1, 20x7. (Do not round your Intermediate calculations. Round your final answer to nearest whole dollar.) 19 Balance in investment Stargell stockholders' equity, January 1, 20X7: common stock premium on common stock retained eamings 487,000 267,000 457,000 1,211,000 90% 1,089,900 72,000 (4,860) 28 ownership share book value of shares held differential inventory sale deferred 30 Balance in investment Stargell stockholders' equity, January 1, 20X7: common stock premium on common stock retained eamings 487,000 267,000 457,000 1,211,000 7 90% 9 0 ownership share book value of shares held differential inventory sale deferred Balance in Investment in Stargell Stock account January 1, 20X7 1,089,900 72,000 (4,860) 1,157,040 34 e. Compute the gain or loss on the constructive retirement of Stargell's bonds that should appear in the 20x7 36 Gain 37 38 39 Gain on constructive retirement of Stargell's bonds: original proceeds from issuance of bonds premium amortized 1,010,000 40 41 42 book value of bonds price paid for bonds by Posey Gain on constructive retirement of (6,000) 1,004,000 (980,000) LOGO Incine Instructia Milano Thal Balam 2017 Sunnartind 34 e. Compute the gain or loss on the constructive retirement of Stargell's bonds that should appear in the 20X7 35 36 Gain 38 Gain on constructive retirement of Stargell's bonds: original proceeds from issuance of bonds premium amortized 39 1,010,000 40 41 (6,000) 1,004,000 (980,000) 42 book value of bonds price paid for bonds by Posey Gain on constructive retirement of Stargell's bonds 24,000 C. Compute the income that should be assigned to the noncontrolling interest in the 20x7 consolidated income statement. (Do not round your intermediate calculations. Round your final answer to nearest whole dollar.) 51 Income to noncontrolling interest 52 53 Stargell's 20X7 net income 54 20x6 profit realized in 20x7 55 constructive gain on retirement of bonds unrealized profit on 20x7 transfer 154,000 5,400 24,000 (5,000) 56 proportion of constructive gain on bond caraman niad.w b statement. (Do not found your mermeulde LailUS. HUU UUTUWI NICUL IUIC LUI.) 51 Income to noncontrolling interest 53 Stargell's 20X7 net income * 54 20x6 profit realized in 20x7 55 constructive gain on retirement of bonds unrealized profit on 20x7 transfer 154,000 5,400 24,000 (5,000) 56 (6,000) proportion of constructive gain on bond retirement recognized currently by separate affiliates ($24000/ 4 years) 58 impairment of goodwill 59 subsidiary income to be aportioned 57 separa (25,000) 147,400 noncontrolling interest proportionate share 10% 61 Income to noncontrolling interest 14,740 63 Net income calculations 72 Net income ENE EEEEEE REITTEE Record the basic consolidation entry. B Record the amortized excess value differential entry. Record the excess value (differential) reclassification entry. 3 Record the reversal of last year's deferral. 5 6 Record the deferral of the 20x7 unrealized profits on the inventory transfer. 20 Record the elimination of the intercompany holdings of Posey's bonds. 23 Record the entry to eliminate the intercompany interest receivables/payables. 24 26 Record the entry to eliminate the accrued interest on the intercompany bonds. 28 29 Record the entry to eliminate the intercompany holdings of Stargell's bonds. 30 32 Record the entry to eliminate the intercompany dividend payable/receivable. Overview 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 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. 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 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 Debit Credit 49,500 121,500 317,000 1,243,800 985,000 Stargell Corporation Debit Credit 39,000 90,100 364,900 Item Cash Current Receivables Inventory Investment in Stargell Stock Investment in Stargell Bonds Investment in Posey Bonds Land Buildings and Equipment Cost of Goods Sold Depreciation & Amortization Other Expenses Dividends Declared Accumulated Depreciation Current Payables Bonds Payable Premium on Bonds Payable Common Stock Premium on Common Stock Retained Earnings, January 1 Sales Other Income Income from Stargell Corp. Total 1,241,000 2,940,000 1,829,000 184,000 632,000 61,000 200,000 518,000 1,915,000 426,000 65,000 206,000 51,000 $ 1,050,000 699,190 200,000 597,000 213,000 1,000,000 3,000 910,000 610,000 2,848,950 3,010,000 143,000 132,660 9,603,800 487,000 267,000 457,000 801,000 50,000 $ 9,603,800 $ $ 3,875,000 $ 3,875,000 3 Required: 4 a. Compute the amount of the goodwill as of January 1, 20x7. 6 Goodwill at acquisition Goodwill as of January 1, 20X7: fair value consideration fair value of noncontrolling interest book value of net assets at acq. differential at acquisiton increase in fair value of land Goodwill at acquisition 1,116,900 124,100 1,241,000 1,161,000 80,000 (30,000) 50,000 b. Compute the balance of Posey's Investment in Stargell Stock account as of January 1, 20x7. (Do not round your Intermediate calculations. Round your final answer to nearest whole dollar.) 19 Balance in investment Stargell stockholders' equity, January 1, 20X7: common stock premium on common stock retained eamings 487,000 267,000 457,000 1,211,000 90% 1,089,900 72,000 (4,860) 28 ownership share book value of shares held differential inventory sale deferred 30 Balance in investment Stargell stockholders' equity, January 1, 20X7: common stock premium on common stock retained eamings 487,000 267,000 457,000 1,211,000 7 90% 9 0 ownership share book value of shares held differential inventory sale deferred Balance in Investment in Stargell Stock account January 1, 20X7 1,089,900 72,000 (4,860) 1,157,040 34 e. Compute the gain or loss on the constructive retirement of Stargell's bonds that should appear in the 20x7 36 Gain 37 38 39 Gain on constructive retirement of Stargell's bonds: original proceeds from issuance of bonds premium amortized 1,010,000 40 41 42 book value of bonds price paid for bonds by Posey Gain on constructive retirement of (6,000) 1,004,000 (980,000) LOGO Incine Instructia Milano Thal Balam 2017 Sunnartind 34 e. Compute the gain or loss on the constructive retirement of Stargell's bonds that should appear in the 20X7 35 36 Gain 38 Gain on constructive retirement of Stargell's bonds: original proceeds from issuance of bonds premium amortized 39 1,010,000 40 41 (6,000) 1,004,000 (980,000) 42 book value of bonds price paid for bonds by Posey Gain on constructive retirement of Stargell's bonds 24,000 C. Compute the income that should be assigned to the noncontrolling interest in the 20x7 consolidated income statement. (Do not round your intermediate calculations. Round your final answer to nearest whole dollar.) 51 Income to noncontrolling interest 52 53 Stargell's 20X7 net income 54 20x6 profit realized in 20x7 55 constructive gain on retirement of bonds unrealized profit on 20x7 transfer 154,000 5,400 24,000 (5,000) 56 proportion of constructive gain on bond caraman niad.w b statement. (Do not found your mermeulde LailUS. HUU UUTUWI NICUL IUIC LUI.) 51 Income to noncontrolling interest 53 Stargell's 20X7 net income * 54 20x6 profit realized in 20x7 55 constructive gain on retirement of bonds unrealized profit on 20x7 transfer 154,000 5,400 24,000 (5,000) 56 (6,000) proportion of constructive gain on bond retirement recognized currently by separate affiliates ($24000/ 4 years) 58 impairment of goodwill 59 subsidiary income to be aportioned 57 separa (25,000) 147,400 noncontrolling interest proportionate share 10% 61 Income to noncontrolling interest 14,740 63 Net income calculations 72 Net income ENE EEEEEE REITTEE Record the basic consolidation entry. B Record the amortized excess value differential entry. Record the excess value (differential) reclassification entry. 3 Record the reversal of last year's deferral. 5 6 Record the deferral of the 20x7 unrealized profits on the inventory transfer. 20 Record the elimination of the intercompany holdings of Posey's bonds. 23 Record the entry to eliminate the intercompany interest receivables/payables. 24 26 Record the entry to eliminate the accrued interest on the intercompany bonds. 28 29 Record the entry to eliminate the intercompany holdings of Stargell's bonds. 30 32 Record the entry to eliminate the intercompany dividend payable/receivable