accounting 1858132 2

 

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

 

company merchandise. On January 1, 2012, 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 ($5par)……… ……….. …….            $100,000

 

Paid-incapital inexcessofpar …………………           50,000

 

Retained earnings ………………………….              80,000

 

Totalstockholders’ equity…… ……….. …….           $230,000

 

 

 

 

 

At the purchase date, Train’s book values for assets and liabilities closely approximate fair

 

values. Any excess of cost over book value is attributed to goodwill.

 

On January 1, 2013, Train Company sells 5,000 shares of common stock in a public offer-

 

ing at $20 per share. Mitta Corporation purchases 4,000 shares.

 

During 2013, Mitta sells $30,000 of goods to Train at a gross profit of 25%. There are

 

$6,000 of Mitta goods in Train’s beginning inventory and $8,000 of Mitta goods in Train’s end-

 

ing inventory.

 

Merchandise sales by Train to Mitta are $20,000 during 2013 at a gross profit of 30%.

 

There are $6,000 of Train goods in Mitta’s beginning inventory and $2,000 of Train goods in

 

Mitta’s ending inventory.

 

Intercompany gross profit rates have been constant for many years. There are no intercom-

 

pany payables/receivables.

 

Mitta’s investment in Train Company balance is determined as follows:

 

Originalcost ……………………………………………….. ….      $156,000

 

60%ofTrain 2012income ($40,000 60%)…. ……….. ……….. 24,000

 

Subtotal …….. ……….. … …….. … …….. ……….. ……….    $180,000

 

Less60%ofTrain dividends declared in2012(60% $8,000) …….. (4,800)

 

Subtotal …….. ……….. … …….. … …….. ……….. ……….    $175,200

 

Costtoacquireadditionalshares (new issue) ….. ……….. ……….. ……..       80,000

 

64%ofTrain 2013income ($50,000 Â64%)…. ……….. ……….. ……..                32,000

 

Subtotal …….. ……….. … …….. … …….. ……….. ……….    $287,200

 

Less64%ofTrain dividends declared in2013(64% Â$10,000)……. ……….. . (6,400)

 

Investmentbalance, December31,2013……….. ……….. ……….. …               $280,800

 

The trial balances of the two companies as of December 31, 2013, are as follows:

 

 

 

                                                                                  Mitta                               Train

 

                                                                           Corporation                         Company

 

 

 

Cash ………… ……….. ……….. ……….. …….                  106,200                      63,500

 

Accounts Receivable ……….. ……….. ……….. …….         113,600                60,000

 

Inventory ……… ……….. ……….. ……….. …….                  350,000                80,000

 

InvestmentinTrain Company …… ……….. ……….. …    .280,800

 

Property,Plant, andEquipment….. ……….. ……….. …  1,800,000          360,000

 

Accumulated Depreciation …….. ……….. ……….. … . (600,000)             (89,500)

 

Accounts Payable ……. ……….. ……….. ……….. ..          (180,000)            (64,000)

 

Other CurrentLiabilities……… ……….. ……….. ……        (26,000)            (8,000)

 

BondsPayable………………………………………       (500,000)

 

 

 

                                                                                        Mitta                       Train

 

                                                                                       Corporation          Company

 

Company

 

CommonStock($10 par) ………. ……….. ……….. ….      (1,000,000)

 

CommonStock($5par) ….. ……….. ……….. ……….         (125,000)

 

Paid-In Capital inExcess ofPar …… ……….. ……….. ..(125,000)

 

Retained Earnings,January 1,2013……… ……….. …… (212,600)             (112,000)

 

Sales ……. ……….. ……….. ……….. …………                    (1,950,000)           (600,000)

 

Subsidiary Income………. ……….. ……….. ……….                (32,000)

 

Costof GoodsSold ……… ……….. ……….. ……….           1,170,000               420,000

 

Other Expenses . ……….. ……….. ……….. ……….                630,000                130,000

 

Dividends Declared…. ……….. ……….. ……….. ….              50,000                  10,000

 

Totals ….. ……….. ……….. ……….. …………                                   0                            0

 

Prepare the worksheet necessary to produce the consolidated financial statements of Mitta

 

Corporation and its subsidiary as of December 31, 2013. Include the determination and distri-

 

bution of excess and income distribution schedule.

 

 

 

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