Question
Problem 8-6 (LO 4) Worksheet, direct and indirect holding, intercompany merchandise, machine.The following diagram depicts the relationships among Mary Company, John Company, and Joan Company
Problem 8-6 (LO 4) Worksheet, direct and indirect holding, intercompany merchandise, machine.The following diagram depicts the relationships among Mary Company, John Company, and Joan Company on December 31, 2018:
Mary Company purchases its interest in John Company on January 1, 2016, for $204,000. John Company purchases its interest in Joan Company on January 1, 2017, for $75,000. Mary Company purchases its interest in Joan Company on January 1, 2018, for $72,000. All investments are accounted for under the equity method. Control over Joan Company does not occur until the January 1, 2018, acquisition. Thus, a D&D schedule will be prepared for the investment in Joan as of January 1, 2018.
The following stockholders equities are available:
John Company December 31, Joan Company December 31,
2015 2016 2017
Common stock ($10 par) $150,000
Common stock ($10 par) $100,000 $100,000
Paid-in capital in excess of par 75,000
Retained earnings 75,000 50,000 80,000
Total equity $300,000 $150,000 $180,000
On January 2, 2018, Joan Company sells a machine to Mary Company for $20,000. The machine has a book value of $10,000, with an estimated life of five years and is being depreciated on a straight-line basis.
John Company sells $20,000 of merchandise to Joan Company during 2018 to realize a gross profit of 30%. Of this merchandise, $5,000 remains in Joan Companys December 31, 2018, inventory. Joan owes John $3,000 on December 31, 2018, for merchandise delivered during 2018.
Trial balances of the three companies prepared from general ledger account balances on December 31, 2018, are as follows:
Mary CompanyJohn Company Joan Company
Cash 62,500 60,000 30,000
Accounts Receivable 200,000 55,000 30,000
Inventory 360,000 80,000 50,000
Investment in John Company 270,000
Investment in Joan Company 86,000 107,500
Property, Plant, and Equipment 2,250,000 850,000 350,000
Accumulated Depreciation (938,000) (377,500) (121,800)
Intangibles 15,000
Accounts Payable (215,500) (61,000) (22,000)
Accrued Expenses (12,000) (4,000) (1,200)
Bonds Payable (500,000) (300,000) (100,000)
Common Stock ($5 par) (500,000)
Common Stock ($10 par) (150,000)
Common Stock ($10 par) (100,000)
Paid-In Capital in Excess of Par (700,000) (75,000)
Retained Earnings, January 1, 2018 (290,000) (130,000) (80,000)
Sales (1,800,000) (500,000) (300,000)
Gain on Sale of Equipment (10,000)
Subsidiary Income (58,000) (20,000)
Cost of Goods Sold 1,170,000 350,000 180,000
Other Expenses 525,000 100,000 90,000
Dividends Declared 75,000 15,000 5,000
Totals 0 0 0
Prepare the worksheet necessary to produce the consolidated financial statements of Mary Company and its subsidiaries as of December 31, 2018. Include the determination and distribution of excess and income distribution schedules. Any excess of cost is assumed to be attributable to goodwill.
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