Question

Pavin acquires all of Stabler's outstanding shares on January 1, 2015, for $710.000 in cash. Of this amount, $55.000 was attributed to equipment with a 10-year remaining life and $65.000 was assigned to trademarks expensed over a 20-year period. Pavin applies the partial equity method so that income is accrued each period based solely on the earnings reported by the subsidiary. On January 1, 2018. Pavin reports $550.000 in bonds outstanding with a carrying amount of $512,000. Stabler purchases half of these bonds on the open market for $265.500. During 2018. Pavin begins to sell merchandise to Stabler. During that year, inventory costing $135.000 was transferred at a price of $180.000. All but $35.000 (at sales price) of these goods were resold to outside parties by year-end. Stabler still owes $58,000 for inventory shipped from Pavin during December The following financial figures are for the two companies for the year ending December 31, 2018. Dividends were both declared and paid during the current year. $ Pavin (815,800) 480,000 150, eee 61,000 Stabler (555, 800) 265,000 183,500 (27,250) $ Revenues Cost of goods sold Expenses Interest expense-bonds Interest income-bond investment Loss on extinguishment of bonds Equity in Stabler's income Net income Retained earnings, 1/1/18 Net income Dividends paid Retained earnings, 12/31/18 Cash and receivables Inventory Investment in Stabler Investment in Pavin bonds Land, buildings, and equipment (net) Trademarks Total assets Accounts payable Bonds payable Discount on bonds Common stock Retained earnings (above) Total liabilities and stockholders' equity (133,750) (257,750) (370,000) (257,750) 180,000 (447,750) 242. eee 280, 80e 787,750 (133,750) (411, 800) (133, 758) 182,800 (442,750) 60, 80e 112,800 $ 278, eee 268,750 566,00 $ 1.086,758 $ (294, 800) (125,80e) $ 1,419,750 (113,890) (550, eee) 25.ee (334, eee) (447,758) $ (1,419,750) (145,000) (442,750) $(1,886,750) Note: Credits are indicated by parentheses. Prepare a worksheet to produce consolidated balances. (For accounts where multiple consolldation entries are required, combine all deblt entries Into one amount and enter thls amount In the deblt column of the worksheet. Similarly, combine all credit entries Into one amount and enter this amount In the credit column of the worksheet. Amounts In the Del entered as nositve. Negative amounts for the Consolldated. Totals.column should be entered with..mlmusslan.....

Answer 1

Acquisition-date fair-value allocation and amortization

                                                                                                                                                         

Equipment	55000	10‑year life	$5500 annual amortization
Trademarks	65000	20‑year life	$3250 annual amortization

Entry *C = Amortization expense ($8750 × 3 years) = $26250

Unrealized gain in ending inventory (downstream):
Ending balance	35000
Markup (180000-135000)/180000	25%
Unrealized gain to be eliminated	$8750

Loss on extinguishment of bonds:
Book value at date of repurchase	512000
Percentage repurchased	50%
Equivalent book value	256000
Amount paid	265500
Loss on extinguishment of bonds	$9500

Pavin and Stabler Consolidation Worksheet Year Ending December 31, 2018
			Consolidation entries
Accounts	Pavin	Stabler	Debit	Credit	Consolidated Totals
Revenues	(815000)	(555000)	180000		-1190000
Cost of goods sold	480000	265000	8750	180000	573750
Expenses	150000	183500	8750		342250
Interest expense-bonds	61000	0		30500	30500
Interest income – bond investment	0	(27250)	27250		0
Loss on extinguishment of bonds	0	0	9500		9500
Equity in income of Stabler	(133750)	0	133750		0
Net income	(257750)	(133750)			(234000)
Retained earnings, 1/1/18	(370000)		27250		(342750)
Retained earnings, 1/1/18		(411000)	411000		0
Net income	(257750)	(133750)			(234000)
Dividend paid	180000	102000		102000	180000
Retained earnings, 12/31/18	(447750)	(442750)			(396750)
Cash receivables	242000	60000		52000	250000
Inventory	200000	112000		8750	303250
Investment in stabler	707750	0	102000	809750	0
Investment in pavin	0	268750		268750	0
Land, buildings and equipment (net)	270000	566000	38500	5500	869000
trademarks	0	0	55250	3250	52000
Total	1419750	1006750			1474250
Accounts payable	(113000)	(294000)	58000		(349000)
Bonds payable	(550000)	(125000)	275000		(400000)
Discount on bonds	25000	0		12500	12500
Common stock	(334000)	(145000)	145000		(334000)
Retained earnings	(447750)	(442750)			(396750)
Total liabilities and stockholders’ equity	(1419750)	(1006750)	1480000	1480000	(1474250)

55000-(5500*3) = 34300

65000-(3250*3) = 55250