On January 1, 2015, Packard Corporation acquired 70% of the common stock of Stude Corporation for $400,000. On this date, Stude had the following balance sheet:
|
Stude Corporation Balance Sheet January 1, 2015 |
|||
|---|---|---|---|
|
Assets |
Liabilities and Equity |
||
|
Accounts receivable |
$ 60,000 |
Accounts payable |
$ 40,000 |
|
Inventory |
40,000 |
Bonds payable |
100,000 |
|
Land |
60,000 |
Common stock ($1 par) |
10,000 |
|
Buildings |
200,000 |
Paid-in capital in excess of par |
90,000 |
|
Accumulated depreciation |
(50,000) |
Retained earnings |
112,000 |
|
Equipment |
72,000 |
||
|
Accumulated depreciation |
(30,000) |
|
|
|
Total assets |
$352,000 |
Total liabilities and equity |
$352,000 |
Buildings, which have a 20-year life, were understated by $150,000. Equipment, which has a 5-year life, was understated by $60,000. The 3,000 NCI shares had a fair value of $50 each. Any remaining excess was considered to be goodwill. Packard used the simple equity method to account for its investment in Stude.
Packard and Stude had the following trial balances on December 31, 2016:
|
Packard Corporation |
Stude Corporation |
|
|---|---|---|
|
Cash |
66,000 |
132,000 |
|
Accounts Receivable |
90,000 |
45,000 |
|
Inventory |
120,000 |
56,000 |
|
Land |
100,000 |
60,000 |
|
Investment in Stude |
428,000 |
|
|
Buildings |
800,000 |
200,000 |
|
Accumulated Depreciation |
(220,000) |
(65,000) |
|
Equipment |
150,000 |
72,000 |
|
Accumulated Depreciation |
(90,000) |
(46,000) |
|
Accounts Payable |
(60,000) |
(102,000) |
|
Bonds Payable |
(100,000) |
|
|
Common Stock |
(100,000) |
(10,000) |
|
Paid-In Capital in Excess of Par |
(800,000) |
(90,000) |
|
Retained Earnings, January 1, 2016 |
(325,000) |
(142,000) |
|
Sales |
(800,000) |
(350,000) |
|
Cost of Goods Sold |
450,000 |
208,500 |
|
Depreciation Expense—Buildings |
30,000 |
7,500 |
|
Depreciation Expense—Equipment |
15,000 |
8,000 |
|
Other Expenses |
140,000 |
98,000 |
|
Interest Expense |
8,000 |
|
|
Subsidiary Income |
(14,000) |
|
|
Dividends Declared |
20,000 |
10,000 |
|
Totals |
0 |
0 |
Problem 4-3 (LO 2) 70%, equity, beginning and ending inventory, subsidiary seller.
Refer to the preceding facts for Packard’s acquisition of Stude common stock. On January 1, 2016, Packard held merchandise acquired from Stude for $10,000. This beginning inventory had an applicable gross profit of 25%. During 2016, Stude sold $40,000 worth of merchandise to Packard. Packard held $6,000 of this merchandise at December 31, 2016. This ending inventory had an applicable gross profit of 30%. Packard owed Stude $11,000 on December 31 as a result of these intercompany sales.
Required
- 1. Prepare a value analysis and a determination and distribution of excess schedule for the investment in Stude.
- 2. Complete a consolidated worksheet for Packard Corporation and its subsidiary Stude Corporation as of December 31, 2016. Prepare supporting amortization and income distribution schedules.
Please use template supplied to complete this problem.
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