Use the following information for Problems 5-4 and 5-5:

On January 1, 2014, Pontiac Company acquired an 80% interest in the common stock of Stark Company for $400,000. Stark had the following balance sheet on the date of acquisition:

Stark Company Balance Sheet January 1, 2014
Assets		Liabilities and Equity
Accounts receivable	$ 40,000	Accounts payable	$ 42,297
Inventory	20,000	Bonds payable	100,000
Land	35,000	Discount on bonds payable	(2,297)
Buildings	250,000	Common stock ($10 par)	10,000
Accumulated depreciation	(50,000)	Paid-in capital in excess of par	90,000
Equipment	120,000	Retained earnings	115,000
Accumulated depreciation	(60,000)
Total assets	$355,000	Total liabilities and equity	$355,000

Buildings (20-year life) are undervalued by $80,000. Equipment (5-year life) is undervalued by $50,000. Any remaining excess is considered to be goodwill.

Stark issued $100,000 of 8%, 10-year bonds for $96,719 on January 1, 2011. Annual interest is paid on December 31. Pontiac purchased the bonds on January 1, 2015, for $104,770. Both companies use the straight-line method to amortize the premium/discount on the bonds. Pontiac and Stark used the following bond amortization schedules:

Stark	Pontiac
Period	Cash	Interest	Balance	Period	Cash	Interest	Balance
1/2011			$ 96,719	1/2011
1/2012	$8,000	$8,328	97,047	1/2012
1/2013	8,000	8,328	97,375	1/2013
1/2014	8,000	8,328	97,703	1/2014
1/2015	8,000	8,328	98,031	1/2015			$104,770
1/2016	8,000	8,328	98,359	1/2016	$8,000	$7,205	103,975
1/2017	8,000	8,328	98,687	1/2017	8,000	7,205	103,180
1/2018	8,000	8,328	99,015	1/2018	8,000	7,205	102,385
1/2019	8,000	8,328	99,343	1/2019	8,000	7,205	101,590
1/2020	8,000	8,328	99,671	1/2020	8,000	7,205	100,795
1/2021	8,000	8,328	100,000*	1/2021	8,000	7,205	100,000

*Adjusted for rounding

Problem 5-4 (LO 2) 80%, equity, straight-line bonds purchased this year, inventory profits.

Refer to the preceding facts for Pontiac?s acquisition of 80% of Starks common stock and the bond transactions. Pontiac uses the simple equity method to account for its investment in Stark. On January 1, 2015, Stack held merchandise acquired from Pontiac for $15,000. During 2015, Pontiac sold $50,000 worth of merchandise to Stark. Stark held $20,000 of this merchandise at December 31, 2015. Stark owed Pontiac $10,000 on December 31 as a result of these intercompany sales. Pontiac has a gross profit rate of 30%. Pontiac and Stark had the trial balances on December 31, 2015, shown on next page.

	Pontiac Company	Stark Company
Cash	17,870	32,031
Accounts Receivable	90,000	60,000
Inventory	100,000	30,000
Land	150,000	45,000
Investment in Stark	435,738
Investment in Stark Bonds	103,975
Buildings	500,000	250,000
Accumulated Depreciation	(300,000)	(70,000)
Equipment	200,000	120,000
Accumulated Depreciation	(100,000)	(84,000)
Accounts Payable	(55,000)	(25,000)
Bonds Payable		(100,000)
Discount on Bonds Payable		1,641
Common Stock	(100,000)	(10,000)
Paid-In Capital in Excess of Par	(600,000)	(90,000)
Retained Earnings, January 1, 2015	(400,000)	(145,000)
Sales	(600,000)	(220,000)
Cost of Goods Sold	410,000	120,000
Depreciation Expense?Buildings	30,000	10,000
Depreciation Expense?Equipment	15,000	12,000
Other Expenses	109,360	45,000
Interest Revenue	(7,205)
Interest Expense		8,328
Subsidiary Income	(19,738)
Dividends Declared	20,000	10,000
Totals	0	0

Required

Prepare the worksheet necessary to produce the consolidated financial statements for Pontiac Company and its subsidiary Stark Company for the year ended December 31, 2015. Include the determination and distribution of excess and income distribution schedules.

Please complete Problem 5-4 using the Excel spreadsheet attached.

Name of Company Being Acquired Stark Company Name of Acquiring Company Pontiac Company Date of Acquisition January 1,2014 Date of Acquisition Stark Company Book Market Assets Cash Accounts Receivable Inventory Life Investment in Subsidiary Intercompany Bond Investment Land Buildings Accumulated Depreciation Equipment Accumulated Depreciation Goodwill Total Assets - - - - Liabilities Accounts Payable Bonds Payable Discount on Bonds Payable Total Liabilities Equity Acquired Company Common Stock Paid-in Capital in Excess of Par Retained Earnings Equity Acquiring Company Common Stock Paid-in Capital in Excess of Par Retained Earnings Total Equity - Total Liabilities and Equity Net Assets at Market of Acquired Co. Dividends Declared Acquired Company Dividends Declared Acquiring Company Sales Cost of Goods Sold Depreciation Expense of Buildings Equipment Amortization Expense of Other Expenses Interest Expense Gain on Sale of Assets Interest Revenue Subsidiary Income Total Balances - Purchase Price Cash Number of shares exchanged Par value of a share of stock Market value of a share of stock Market value of stock exchanged Total purchase price - Ownership Interest enter as . 7 for 70% Goodwill Applicable to NCI Implied Value of NCI Interest #DIV/0! Estimated Value of NCI interest if not the implied proportional amount--Enter amount or 0 Method of Accounting for Investment--Enter Capital C for Cost or Capital E for Equity - E Years since Acquisition Intercompany Merchandise Information Parent Sales Parent % Subsidiary Sales By Parent By Sub Current Year Sales Unpaid Account Balance, at year end Beginning Inventory Ending Inventory Intercompany Fixed Asset Sales Type of Fixed Asset--Enter in Columns B or C Enter 1 for Land Enter 2 for Buildings Enter 3 for Equipment Profit Amount Life of Asset--leave blank for land Year of Sale (Assume Beginning of Year) Intercompany Bond Information Maturity Value Face Interest Rate (Enter .08 for 8%,.075 for 7.5%) Original Years to Maturity Year Bond Issued (Assume January Issuance) Issue Rate Year Bond Purchased (Assume January Purchase)) Purchase Rate (if effective interest amortization) Face Value Purchased Method of Amortization (Enter capital S for Straight-line and capital E for Effective Interest in Column B.) Issue Price Purchase Price If the bonds were purchased the current year enter 1. If the bonds were purchased in a previous year enter 2. Month Interest Paid January =1, December=12) Value Analysis Company Fair Value Parent Price #DIV/0! Company Fair Value Fair Value of Net Assets Excluding Goodwill Goodwill Gain on Acquisition NCI Value #DIV/0! #DIV/0! #DIV/0! - #DIV/0! Determination and Distribution of Excess Schedule Implied Company Value Parent Price #DIV/0! Fair Value of Company Less Book Value of Interest Acquired Common Stock Paid-in Capital in Excess of Par Retained Earnings Total Equity - Interest Acquired Book Value Excess of Fair Value over Book Value - Elimination Entry Common Stock Paid-in Capital in Excess of Par Retained Earnings Investment in Subsidiary - Debit (Credit) - Land Buildings Equipment Goodwill Bonds Payable Discount on Bonds Payable - #DIV/0! - 0 1.00 - - #DIV/0! Key EL - Adjustment to Identifiable Accounts Inventory Investment in Subsidiary NCI Value #DIV/0! Key D D D D D D D D D D D D D EL EL EL Life - Gain Taken to Acquiring Co. RE/Income Acquired Company RE Check #DIV/0! D #DIV/0! D #DIV/0! Amortization Schedule Account Adjustment Annual Amount Current Year Prior Years Inventory Buildings Equipment Discount on Bonds Payable Total Amortization Entry Debit (Credit) Cost of Goods Sold Depreciation Expense of Buildings Equipment - 0 Key A A A A Amortization Expense of Interest Expense Acquired Company RE Acquiring Company RE Inventory Accumulated Depreciation Accumulated Depreciation - Discount on Bonds Payable Total Method Adjustment Schedule Is Adjustment Necessary? Adjustment to Investment Account Adjustment to Retained Earnings Account Date Alignment Schedule Debit (Credit) NO A A A A A A A A A A A A A A A Key - CV - CV Debit (Credit) Key 0 Adjustment to Subsidiary Income Account Adjustment to Subsidiary Dividend Account - CY - CY Adjustment to Investment Account under Equity Method - CY Intercompany Inventory Profit Deferral and Intercompany Sales and Receivables. Sold by Parent Beginning Inventory Ending Inventory Current Year Sales Year End Unpaid Account Balances Elimination Entries Eliminate Intercompany Merchandise Sales Sales Cost of Goods Sold Parent % - Debit (Credit) Parent Profit 0.00 0.00 KEY - IS - IS Eliminate Intercompany unpaid trade balance at year end Accounts Payable Accounts Receivable - IA - IA Eliminate Profit made by parent on merchandise in subsidiary's beginning inventory Retained Earnings-Parent Cost of Goods Sold - BI - BI Eliminate Profit made by parent on merchandise in subsidiary's ending inventory Cost of Goods Sold Inventory - EI - EI Eliminate Profit made by subsidiary on merchandise in parents' beginning inventory Retained Earnings-Parent - BI Retained Earnings-Subsidiary - BI - Cost of Goods Sold - BI Eliminate Profit made by subsidiary on merchandise in parents' ending inventory Cost of Goods Sold Inventory - EI - EI Intercompany Fixed Asset Profit Deferral Original Profit Life of Asset Annual Depreciation Adjustment Realized in Prior Years Balance at Start of Year Realized in Current Year Sale by Parent Elimination Entry Retained Earnings Parent Gain on Sale of Asset Retained Earnings Parent Debit (Credit) Retained Earnings Subsidiary Gain on Sale of Asset Depreciation Expense Depreciation Expense Check - - Key - F - F - F F F F F F F F F Stark Company Period (First line is January 1year of issuance. Second line is December 31- year of issuance.) Cash/Payable 0 0 1 2 3 4 5 6 7 8 9 Elimination Entries - - - Intercompany Bond Eliminations Amortization Table For Sale by Sub - Debit (Credit) Interest - Balance #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! Key Proof: Bonds Payable - B Interest Revenue Loss (Gain) on Bond Retirement (Premium) Discount on Bonds Payable - B Retained Earnings Parent - B Retained Earnings Subsidiary - B Interest Expense - B Intercompany Bond Investment Check Balances - B Interest Payable Interest Receivable - B - B Loss Remaining at Year End - B - B Loss Amortized During the Year Consolidated Worksheet Trial Balance Eliminations Pontiac Company Cash Accounts Receivable Inventory Investment in Subsidiary Stark Company Key - - - D CV CY Intercompany Bond Investment Land - - Buildings - - D Accumulated Depreciation - Equipment - - A F F - D Accumulated Depreciation - - - - - - Bonds Payable - Discount on Bonds Payable - Goodwill Accounts Payable - - - - A F F - D - A - D A - D A - D - IA - B - D B - D A B - D A - EL Common Stock Paid-in Capital in Excess of Par Retained Earnings - Common Stock Paid-in Capital in Excess of Par Retained Earnings - - EL - EL A BI F B - - - - A CV BI BI F F B Dividends Declared Acquired Company Dividends Declared Acquiring Company Sales Cost of Goods Sold - - - - IS - A EI EI Depreciation Expense of - - Buildings - - A Equipment - - A Other Expenses Interest Expense - - Subsidiary Income Interest Revenue Gain on Sale of Assets - - CY - B - F F Amortization Expense of - Gain on Acquisition of Business Loss (Gain) on Bond Retirement Total Consolidated Net Income NCI Share Controlling Share NCI Balances Stark Company - Realized Gain on Asset Sale Current Year Amortizations 0 Gain/Loss on Bond Retirement 0 Interest Adjustment on Bonds Adjusted (Income) or Loss NCI Share Controlling Share 0 - Pontiac Company Internally Generated Net Income A A A B Balances Controlling Retained Earnings Income Distribution Schedules Internally Generated Net (Income) or Loss Beginning Inventory Profit Ending Inventory Profit Gain on Asset in Income A - Gain on Acquisition of Business Beginning Inventory Profit Ending Inventory Profit Gain on Asset in Income Realized Gain on Asset Sale #DIV/0! - Controlling Share of Subsidiary Total #DIV/0! Consolidated Net Income #DIV/0! Current Year Trial Balance Pontiac Company Stark Company Balances Balances Subsidiary % Total - Sold by Subsidiary - Subsidiary % Subsidiary Profit 0.00 0.00 - Pontiac Company Period Cash/Payable 0 0 1 2 3 4 5 6 7 8 9 Interest - Balance - - Investment in Bonds at End of Period Carrying Value at End of Period 0 0 Interest Expense Eliminated Interest Revenue Eliminated 0 0 0 0 Loss (Gain) or RE Adjustment at Beginning of Period 0 nations Debit Credit 0 0 0 0 0 0 0 0 0 Key 0 0 0 0 IA EI EI B 0 0 0 0 EL D CV CY 0 0 0 0 0 0 0 0 B D F F D F F A 0 D Consolidated Net Non Control Income Interest 0 0 0 0 0 0 0 0 0 0 F 0 F 0 A 0 0 0 0 0 0 D A D A D A #DIV/0! 0 #DIV/0! D 0 0 0 0 0 0 0 - 0 D 0 0 0 - 0 0 0 0 0 D A B D A #DIV/0! #DIV/0! D 0 A 0 B #DIV/0! D 0 A 0 CV 0 B - CY - A IS BI BI - - - 0 0 0 0 0 0 0 A F F A F F A 0 A 0 A 0 0 - 0 #DIV/0! - A - B 0 CY - - - #DIV/0! D #DIV/0! 0 B #DIV/0! #DIV/0! #DIV/0! #DIV/0! Controlling Retained Earnings Consolidated Balance Sheet - - - - - - #DIV/0! - - #DIV/0! - #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0