Question
Pitt Corporation manufactures household appliances. On January 1, 2017, Pitt acquires Streep Corporation, a furniture manufacturer. Pitt pays $840,000 for 70% of Streeps common stock.
Pitt Corporation manufactures household appliances. On January 1, 2017, Pitt acquires Streep Corporation, a furniture manufacturer. Pitt pays $840,000 for 70% of Streeps common stock. Streep has the following balance sheet on January 1, 2017:
Streep Corporation
Balance Sheet
January 1, 2017
Assets |
Liabilities and Equity
| ||
Accounts receivable | $ 64,000 | Current liabilities.. | 180,000 |
Inventory. | 80,000 | Bonds payable | 200,000 |
Land | 120,000 | Common stock, $ 1 par | 20,000 |
Buildings. | 500,000 | Paid-in capital in excess of par.. | 180,000 |
Accumulated depreciation. | (100,000) | Retained earnings | 224,000 |
Equipment. | 200,000 |
|
|
Accumulated depreciation. | (60,000) |
|
|
Total assets.. | $804,000 | Total liabilities and equity | $804,000 |
Appraisal values for identifiable assets and liabilities are as follows:
Accounts receivable. | $ 64,000 |
Inventory (sold during 2017).. | 76,000 |
Land.. | 300,000 |
Buildings (20-year life) | 600,000 |
Equipment (5-year life).. | 200,000 |
Current liabilities | 180,000 |
Bonds payable (5-year life). | 192,000 |
Any remaining excess is attributed to goodwill. |
|
Pitt uses the simple equity method to account for its investment in Streep. Pitt and Streep have the following trial balances on December 31, 2019.
_________________________________________________Pitt_________ Streep_______
Cash.. | 314,000 | 120,000 |
Accounts Receivable. | 180,000 | 110,000 |
Inventory | 240,000 | 172,000 |
Land.. | 200,000 | 120,000 |
Investment in Streep | 973,000 |
|
Buildings. | 1,600,000 | 600,000 |
Accumulated Depreciation | (440,000) | (160,000) |
Equipment. | 300,000 | 200,000 |
Accumulated Depreciation | (180,000) | (144,000) |
Accounts Payable | (120,000) | (204,000) |
Bonds Payable |
| (200,000) |
Common Stock.. | (200,000) | (20,000) |
Paid-In Capital in Excess of Par.. | (1,800,000) | (180,000) |
Retained Earnings, January 1, 2019 | (728,000) | (364,000) |
Sales. | (1,600,000) | (700,000) |
Cost of Goods Sold.. | 900,000 | 420,000 |
Depreciation ExpenseBuildings | 60,000 | 30,000 |
Depreciation ExpenseEquipment | 30,000 | 28,000 |
Other Expenses. | 280,000 | 136,000 |
Interest Expenses |
| 16,000 |
Subsidiary Income. | (49,000) |
|
Dividends Declared | 40,000 | 20,000 |
Totals. | ______0_ | ____ _ 0 |
On January 1, 2019, Streep held merchandise sold to it by Pitt for $24,000. This inventory had an applicable gross profit of 35%. During 2019, Pitt sold merchandise to Streep for $120,000. On December 31, 2019, Streep held $20,000 of this merchandise in its inventory. This ending inventory held an applicable gross profit rate of 40%. Streep owed Pitt $16,000 on December 31 as a result of this intercompany sale.
Pitt held $32,000 worth of merchandise in its January 1, 2019, inventory from sales from Streep. This beginning inventory had an applicable gross profit of 30%. During 2019, Streep sold merchandise to Pitt for $60,000. Pitt held $40,000 of this inventory at the end of the year. This ending inventory had an applicable gross profit of 35%. Pitt owed Streep $12,000 on December 31 as a result of this intercompany sale.
On January 1, 2017, Pitt sold equipment to Streep at a gain of $80,000. Depreciation on this equipment is computed over an 8-year life, using the straight-line method.
On January 1, 2018, Streep sold equipment with a book value of $60,000 to Pitt for $108,000. This equipment has a 6-year life and is depreciated using the straight-line method.
Directions:
The solution to the above problem should be typed and include: (1) a value analysis; (2) a D&D schedule; (3) an amortization schedule; (4) a schedule to prepare the intercompany sales-related entries on the worksheet; (4) worksheet entries in journal entry form; (5) the completed worksheet through the consolidated balance sheet column; (6) income distribution schedules; and (7) the consolidated financial statements (income statement, statement of retained earnings and balance sheet).
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