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: $ S 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 $ $ 1,050,000 699,190 200,000 910,000 610,000 2,848,950 3,010,000 143,000 132,660 9,603,800 597,000 213,000 1,000,000 3,000 487,000 267,000 457,000 801,000 50,000 $ 9,603,800 $ $ 3,875,000 $ 3,875,000 POSEY MANUFACTURING COMPANY AND SUBSIDIARY Consolidated Financial Statement Worksheet December 31, 20X7 Posey Co. Stargell Corp. Consolidation Entries DR CR Consolidated 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: Accumulated Depreciation Investment in Stargell Stock Investment in Stargell 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 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: $ S 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 $ $ 1,050,000 699,190 200,000 910,000 610,000 2,848,950 3,010,000 143,000 132,660 9,603,800 597,000 213,000 1,000,000 3,000 487,000 267,000 457,000 801,000 50,000 $ 9,603,800 $ $ 3,875,000 $ 3,875,000 POSEY MANUFACTURING COMPANY AND SUBSIDIARY Consolidated Financial Statement Worksheet December 31, 20X7 Posey Co. Stargell Corp. Consolidation Entries DR CR Consolidated 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: Accumulated Depreciation Investment in Stargell Stock Investment in Stargell 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