Problem 8-4 (LO 2) Worksheet, subsidiary stock sale with parent purchase, intercompany merchandise.

On January 1, 2016, Mitta Corporation acquires a 60% interest (12,000 shares) in Train Company for $156,000. Train stockholders equity on the purchase date is as follows:

Common stock ($5 par)

$100,000

Paid-in capital in excess of par

50,000

Retained earnings

80,000

Total stockholders equity

$230,000

At the purchase date, Trains book values for assets and liabilities closely approximate fair values. Any excess of cost over book value is attributed to goodwill.

On January 1, 2017, Train Company sells 5,000 shares of common stock in a public offering at $20 per share. Mitta Corporation purchases 4,000 shares.

During 2017, Mitta sells $30,000 of goods to Train at a gross profit of 25%. There are $6,000 of Mitta goods in Trains beginning inventory and $8,000 of Mitta goods in Trains ending inventory.

Merchandise sales by Train to Mitta are $20,000 during 2017 at a gross profit of 30%. There are $6,000 of Train goods in Mittas beginning inventory and $2,000 of Train goods in Mittas ending inventory.

Intercompany gross profit rates have been constant for many years. There are no intercompany payables/receivables.

Mittas investment in Train Company balance is determined as follows:

Original cost

$156,000

60% of Train 2016 income ($40,000 60%)

24,000

Subtotal

$180,000

Less 60% of Train dividends declared in 2016 (60% $8,000)

(4,800)

Subtotal

$175,200

Cost to acquire additional shares (new issue)

80,000

64% of Train 2017 income ($50,000 64%)

32,000

Subtotal

$287,200

Less 64% of Train dividends declared in 2017 (64% $10,000)

(6,400)

Investment balance, December 31, 2017

$280,800

The trial balances of the two companies as of December 31, 2017, are as follows:

Mitta Corporation

Train Company

Cash

106,200

63,500

Accounts Receivable

113,600

60,000

Inventory

350,000

80,000

Investment in Train Company

280,800

Property, Plant, and Equipment

1,800,000

360,000

Accumulated Depreciation

(600,000)

(89,500)

Accounts Payable

(180,000)

(64,000)

Other Current Liabilities

(26,000)

(8,000)

Bonds Payable

(500,000)

Common Stock ($10 par)

(1,000,000)

Common Stock ($5 par)

(125,000)

Paid-In Capital in Excess of Par

(125,000)

Retained Earnings, January 1, 2017

(212,600)

(112,000)

Sales

(1,950,000)

(600,000)

Subsidiary Income

(32,000)

Cost of Goods Sold

1,170,000

420,000

Other Expenses

630,000

130,000

Dividends Declared

50,000

10,000

Totals

0

0

Required

Prepare the worksheet necessary to produce the consolidated financial statements of Mitta Corporation and its subsidiary as of December 31, 2017. Include the determination and distribution of excess and income distribution schedule.