Question

FINANCIAL INFORMATION FOR THIS MILESTONE Refer to Trial Balance 2017 information (red tab) Posey Manufacturing Company acquired 90% of Stargell Corporation's outstanding common stock on December 31, 20X5, for $1,116,900. At that date, the fair value of the noncontrolling interest was $124, 100, and Stargell reported common stock outstanding of $487,000, premium on common stock of $267,000, and retained earnings of $407,000. The book values and fair values of Stargell's assets and liabilities were equal except for land, which was worth $30,000 more than its book value. On April 1, 20X6, Posey issued at par $200,000 of 10% bonds directly to Stargell; interest on the bonds is payable March 31 and September 30. On January 2, 20X7, Posey purchased all of Stargell's outstanding 10-year, 12% bonds from an unrelated institutional investor at 98. The bonds originally had been issued on January 2, 20x1, for 101. Interest on the bonds is payable December 31 and June 30. Since the date it was acquired by Posey Manufacturing, Stargell has sold inventory to Posey on a regular basis. The amount of such intercompany sales totaled $67,000 in 20x6 and $83,000 in 20X7, including a 30% gross profit. All inventory transferred in 20x6 had been resold by December 31, 20X6, except inventory for which Posey had paid $18,000 and did not resell until January 20X7. All inventory transferred in 20x7 had been resold at December 31, 20X7, except merchandise for which Posey had paid $16,667 As of December 31, 20X7, Stargell had declared but not yet paid its fourth-quarter dividend of $12,750. Both Posey and Stargell use straight-line depreciation and amortization, including the amortization of bond discount and premium. On December 31, 20X7, Posey's management reviewed the amount attributed to goodwill as a result of its purchase of Stargell common stock and concluded that an impairment loss in the amount of $25,000 had occurred during 20x7 and should be shared proportionately between the controlling and noncontrolling interests. Posey uses the fully adjusted equity method to account for its investment in Stargell.

The question is how to calculate the investment in Stargell Corporation?

Answer 1

Stargell stockholders' equity, January 1, 20X7:
Common stock	487,000
premium on common stock	267,000
Retained Earning	457,000
Stockholders Equity total	1,211,000
Posey's ownership share	90%
Book value of shares held by the Posey	1,089,900
Net Income 154000 x 90%	138,600
Less: Dividends 51000 x 90%	-45,900
Balance in Investment in Stargell Stock account,	1,182,600