Problem 4-6 (LO 3) 80%, equity, fixed asset sales by subsidiary and parent. On S
ID: 2396199 • Letter: P
Question
Problem 4-6 (LO 3) 80%, equity, fixed asset sales by subsidiary and parent. On September 1, 2015, Parcel Corporation purchased 80% of the outstanding common stock of Sack Corporation for $152,000. On that date, Sack's net book values equaled fair values, and there was no excess of cost or book value resulting from the purchase. Parcel has been maintain- ing its investment under the simple equity method. Over the next three years, the intercompany transactions between the companies were as ollows: a. On September 1, 2015, Sack Parcel for $14,000 in cash At that time, Sack had depreciated the truck, which had cost $15,000, to its $5,000 salvage value. Parcel estimated on the date of the sale that the asset had a remaining useful life sold its 4-year-old delivery truck to three years and no salvage value. b. On September 1, 2016, Parcel sold equipment to Sack for $103,000. Parcel originally paid $80,000 for the equipment and planned to depreciate it over 20 years, assuming no salvage value. However, Parcel had the property for only 10 years and carried it at a net book value of $40,000 on the sale date. Sack will use the equipment for 10 years, at which time Saclk expects no salvage value. Both companies use straight-line depreciation for all assets Trial balances of Parcel Corporation and Sack Corporation as of the August 31, 2017, year end were as shown below. Parcel Corporation Corporation Sack Cash Accounts Receivable (net) Notes Receivable. Inventory, August 31, 2017 120,000 115,000 50,000 18,000 10,000 34,000 Plant and Equipment Accumulated Depreciation Other Assets Accounts Payable Notes Payable Bonds Payable ( 12%) Common Stock ($10 par) Paid-In Capital in Excess of Par 175,000 217,440 990,700 (170,000) (85,000) 28,000 (80,000) (50,200] (25,000) (300,000 295,000 (290,000 (70,000 (110,000 (62,000)Explanation / Answer
Parcel Corporation and Subsidiary Sack Corporation
Worksheet for Consolidated Financial Statements
For Year Ended August 31, 2017
Trial Balance Eliminations & Consolidated Controlled Consolidated
Adjustments Income NCI Retained Balance
Statement Earnings Sheet
Parcel
Sack
Dr.
Cr.
Cash
120,000
50,000
170,000
Accounts Receivable (net)
115,000
18,000
133,000
Notes Receivable
10,000
10,0000
Inventory, Aug 31,2017
175,000
34,000
209,000
Investment in Sack Corporation
217,440
5,600
(CY2)
23,040 (CY1)
200,000 (EL)
Plant & Equipment
990,000
295,000
9,000 (F1S)
1,213,700
63,000 (F1P)
Accumulated Depreciation
(170,000)
(85,000)
3,000 (F1S)
242,700
3,000 (F2S)
6,300 (F2P)
Other Assets
28,000
28,000
Accounts Payable
(80,000)
(50,200)
(130,200)
Notes Payable
(25,000)
(25,000)
Bonds Payable
(300,000)
(300,000)
Common Stock ($10 Par)- Parcel
(290,000)
(290,000)
Paid-in-Capital in excess of par- Parcel
(110,000)
(110,000)
Retained Earnings,Sep 1,2016-Parcel
(498,850)
4800 (F1S)
(494,050)
Common Stock ($10 Par)- Sack
(70,000)
56,000 (EL)
(14,000)
Paid-in-Capital in excess of par- Parcel
(62,000)
49,600 (EL)
(12,400)
Retained Earnings,Sep 1,2016-Parcel
(118,000)
94,400
(EL)
(22,400)
1,200 (F1S)
Sales
(920,000)
(240,000)
1,160,000
Cost of goods sold
598,000
132,000
730,000
Selling and general expenses
108,000
80,000
3,000 (F2S)
178,700
6,300 (F2P)
Subsidiary income
(23,040)
23,040 (CY1)
Interest Income
(800)
(800)
Interest Expense
37,750
37,750
Gain on sale of Equipment
(63,000)
63,000 (F1P)
Dividends declared
90,000
7,000
5,600 (CY2)
1,400
90,000
0
0
309,940
309,940
Consolidated Net Income
(214,350)
To NCI
6,360
(6,360)
To Controlling Interest
207,990
(207,990)
Total NCI
(53,760)
(53,760)
Retained Earnings-Controlling Interest Aug 31, 2017
(612,040)
(612,040)
0
Subsidiary Sack Corporation Income Distribution
Internally generated net income
28,800
2017 amortization of deferred gain on 2015 sale of truck (F2S)
3,000
Adjusted income
31,800
NCI share
X 20%
NCI
6,360
Parent Parcel Corporation Income Distribution
2017 deferred gain on sale of equipment (F1P)
$63,000
Internally generated net income
$239,250
2017 amortization of deferred gain (F2P)
6,300
80% x sack adjusted income of $31,800
25,440
Controlling Interest
$207,990
Eliminations and Adjustments:
(CY1) Eliminate the entry recording the parent’s share of the subsidiary net income.
(CY2) Eliminate the parent’s share of Sack’s dividends declared.
(EL) Eliminate the investment in Sack and the parent’s share (80%) of the subsidiary equity balances. (F1S) Eliminate the prior-year intercompany gain ($14,000 – $5,000 = $9,000) less the $3,000 realized gain. Adjust the asset and the accumulated depreciation.
(F2S) Adjust current-year depreciation expense and accumulated depreciation for the intercompany truck sale effect ($9,000 ÷ 3 = $3,000).
(F1P) Eliminate the current-period intercompany gain on the sale of the equipment and reestablish its net book value by reducing the account by $63,000.
(F2P) Adjust current-year depreciation expense and accumulated depreciation for the intercompany sale of equipment effect ($63,000 ÷ 10 = $6,300)
Parcel
Sack
Dr.
Cr.
Cash
120,000
50,000
170,000
Accounts Receivable (net)
115,000
18,000
133,000
Notes Receivable
10,000
10,0000
Inventory, Aug 31,2017
175,000
34,000
209,000
Investment in Sack Corporation
217,440
5,600
(CY2)
23,040 (CY1)
200,000 (EL)
Plant & Equipment
990,000
295,000
9,000 (F1S)
1,213,700
63,000 (F1P)
Accumulated Depreciation
(170,000)
(85,000)
3,000 (F1S)
242,700
3,000 (F2S)
6,300 (F2P)
Other Assets
28,000
28,000
Accounts Payable
(80,000)
(50,200)
(130,200)
Notes Payable
(25,000)
(25,000)
Bonds Payable
(300,000)
(300,000)
Common Stock ($10 Par)- Parcel
(290,000)
(290,000)
Paid-in-Capital in excess of par- Parcel
(110,000)
(110,000)
Retained Earnings,Sep 1,2016-Parcel
(498,850)
4800 (F1S)
(494,050)
Common Stock ($10 Par)- Sack
(70,000)
56,000 (EL)
(14,000)
Paid-in-Capital in excess of par- Parcel
(62,000)
49,600 (EL)
(12,400)
Retained Earnings,Sep 1,2016-Parcel
(118,000)
94,400
(EL)
(22,400)
1,200 (F1S)
Sales
(920,000)
(240,000)
1,160,000
Cost of goods sold
598,000
132,000
730,000
Selling and general expenses
108,000
80,000
3,000 (F2S)
178,700
6,300 (F2P)
Subsidiary income
(23,040)
23,040 (CY1)
Interest Income
(800)
(800)
Interest Expense
37,750
37,750
Gain on sale of Equipment
(63,000)
63,000 (F1P)
Dividends declared
90,000
7,000
5,600 (CY2)
1,400
90,000
0
0
309,940
309,940
Consolidated Net Income
(214,350)
To NCI
6,360
(6,360)
To Controlling Interest
207,990
(207,990)
Total NCI
(53,760)
(53,760)
Retained Earnings-Controlling Interest Aug 31, 2017
(612,040)
(612,040)
0
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