Question
Pavin acquires all of Stablers outstanding shares on January 1, 2015, for $590,000 in cash. Of this amount, $43,000 was attributed to equipment with a
Pavin acquires all of Stablers outstanding shares on January 1, 2015, for $590,000 in cash. Of this amount, $43,000 was attributed to equipment with a 5-year remaining life and $53,000 was assigned to trademarks expensed over a 10-year period. Pavin applies the partial equity method so that income is accrued each period based solely on the earnings reported by the subsidiary.
On January 1, 2018, Pavin reports $430,000 in bonds outstanding with a carrying amount of $396,800. Stabler purchases half of these bonds on the open market for $206,700.
During 2018, Pavin begins to sell merchandise to Stabler. During that year, inventory costing $132,000 was transferred at a price of $165,000. All but $23,000 (at sales price) of these goods were resold to outside parties by year-end. Stabler still owes $46,000 for inventory shipped from Pavin during December.
The following financial figures are for the two companies for the year ending December 31, 2018. Dividends were both declared and paid during the current year.
Prepare a worksheet to produce consolidated balances. (For accounts where multiple consolidation 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. Amounts in the Debit and Credit columns should be entered as positive. Negative amounts for the Consolidated Totals column should be entered with a minus sign.)
| Pavin and Stabler | |||||
| Consolidated worksheet | |||||
| For year ending December 31, 2018 | |||||
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|
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| Consolidated Entries | Consolidated | |
| Accounts | Pavin | Stabler | Debit | Credit | Totals |
| Revenues | (779,000) | (531,000) |
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|
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| Cost of goods sold | 468,000 | 253,000 |
|
|
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| Expenses | 138,000 | 171,500 |
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| Interest expense- bonds | 49,000 | 0 |
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| Interest income- bond investment | 0 | (19,450) |
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| Loss on extinguishment of bonds | 0 | 0 |
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| Equity in income of Stabler | (125,950) | 0 |
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| Net income | (249,950) | (125,950) |
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| Retained earnings 1/1/18 | (358,000) |
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| Retained earnings 1/1/18 |
| (387,000) |
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| Net income | (249,950) | (125,950) |
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| Dividends paid | 168,000 | 90,000 |
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| Retained earnings 12/31/18 | (439,950) | (422,950) |
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| Cash and receivables | 230,000 | 48,000 |
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| Inventory | 188,000 | 100,000 |
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| Investment in Stabler | 651,950 | 0 |
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| Investment in Pavin | 0 | 211,750 |
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| Land, buildings, and equipment (net) | 258,000 | 554,000 |
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| Trademarks | 0 | 0 |
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| Total assets | 1,327,950 | 913,750 |
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| Accounts payable | (149,000) | (244,800) |
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| Bonds payable | (430,000) | (113,000) |
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| Discount on bonds | 13,000 | 0 |
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| Common stock | (322,000) | (113,000) |
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| Retained earnings | (439,950) | (422,950) |
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| Total liablilities and stockholders equity | (1,327,950) | (913,750) |
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Income Tax Fundamentals 2013
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
31st Edition
1111972516, 978-1285586618, 1285586611, 978-1285613109, 978-1111972516
