Question
Patio Corporation owns 60 percent of the stock of Stone Container Company, which it acquired at book value in 20X1. At that date, the fair
Patio Corporation owns 60 percent of the stock of Stone Container Company, which it acquired at book value in 20X1. At that date, the fair value of the noncontrolling interest was equal to 40 percent of Stones book value. On December 31, 20X3, Patio purchased $190,000 par value of Stone bonds. Stone originally issued the bonds at par value. The bonds coupon rate is 8 percent. Interest is paid semiannually on June 30 and December 31. Trial balances for the two companies on December 31, 20X4, are as follows:
Patio Corporation | Stone Container Company | |||||||||||||||||||
Item | Debit | Credit | Debit | Credit | ||||||||||||||||
Cash | $ | 61,700 | $ | 20,000 | ||||||||||||||||
Accounts Receivable | 106,000 | 82,000 | ||||||||||||||||||
Inventory | 120,000 | 120,000 | ||||||||||||||||||
Other Assets | 335,000 | 325,000 | ||||||||||||||||||
Investment in Stone Container Bonds | 196,000 | |||||||||||||||||||
Investment in Stone Container Stock | 179,400 | |||||||||||||||||||
Interest Expense | 24,000 | 22,000 | ||||||||||||||||||
Other Expenses | 369,000 | 188,000 | ||||||||||||||||||
Dividends Declared | 49,000 | 13,000 | ||||||||||||||||||
Accounts Payable | $ | 222,700 | $ | 62,000 | ||||||||||||||||
Bonds Payable | 180,000 | 180,000 | ||||||||||||||||||
Common Stock | 280,000 | 110,000 | ||||||||||||||||||
Retained Earnings | 185,000 | 62,000 | ||||||||||||||||||
Sales | 470,000 | 356,000 | ||||||||||||||||||
Interest Income | 14,200 | |||||||||||||||||||
Income from Stone Container Company | 88,200 | |||||||||||||||||||
Total | $ | 1,440,100 | $ | 1,440,100 | $ | 770,000 | $ | 770,000 | ||||||||||||
All interest income recognized by Patio is related to its investment in Stone bonds. Assume Patio uses the fully adjusted equity method. Required: a. Prepare a consolidation worksheet for 20X4 in good form. (Values in the first two columns (the "parent" and "subsidiary" balances) that are to be deducted should be indicated with a minus sign, while all values in the "Consolidation Entries" columns should be entered as positive values. For accounts where multiple adjusting entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet.)
b. Prepare a consolidated balance sheet, income statement, and retained earnings statement for 20X4.
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