Question

POSEY MANUFACTURING COMPANY AND SUBSIDIARY
Consolidated Financial Statement Worksheet
December 31, 20X7
			Consolidation Entries
	Posey Co.	Stargell Corp.	DR	CR	Consolidated
Income Statement
Sales
Other Income
Less: COGS
Less: Depr. & Amort. Expense
Less: Other Expenses
Goodwill Impairment Loss
Gain on Bond Retirement
Income from Stargell Corp.
Consolidated Net Income
NCI in Net Income
Controlling Interest in NI
Statement of Retained Earnings
Beginning Balance
Net Income
Less: Dividends Declared
Ending Balance
Balance Sheet
Assets
Cash
Current Receivables
Inventory
Land
Buildings & Equipment
Less: Accumulated Depreciation
Investment in Stargell Stock
Investment in Stargell Bonds
Investment in Posey Bonds
Goodwill
Total Assets
Liabilities & Equity
Current Payables
Bonds Payable
Premium on Bonds Payable
Common Stock
Premium on Common Stock
Retained Earnings
NCI in NA of Stargell Corp.
Total Liabilities & Equity

On December 31, 20X7, trial balances for Posey and Stargell appeared as follows:
	Posey Manufacturing					Stargell Corporation
Item	Debit			Credit		Debit
Cash		$49,500					$39,000
Current Receivables		121,500					90,100
Inventory		317,000					364,900
Investment in Stargell Stock		1,243,800
Investment in Stargell Bonds		985,000
Investment in Posey Bonds							200,000
Land		1,241,000					518,000
Buildings & Equipment		2,940,000					1,915,000
Cost of Goods Sold		1,829,000					426,000
Depreciation & Amortization		184,000					65,000
Other Expenses		632,000					206,000
Dividends Declared		61,000					51,000
Accumulated Depreciation				$1,050,000					$597,000
Current Payables				699,190					213,000
Bonds Payable				200,000					1,000,000
Premium on Bonds Payable									3,000
Common Stock				910,000					487,000
Premium on Common Stock				610,000					267,000
Retained Earnings, January 1				2,848,950					457,000
Sales				3,010,000					801,000
Other Income				143,000					50,000
Income from Stargell Corp.				132,660
Total		$9,603,800		$9,603,800			$3,875,000		$3,875,000

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.

Answer 1

POSEY MANUFACTURING COMPANY AND SUBSIDIARY
Consolidated Financial Statement Worksheet
December 31, 20X7
			Consolidation Entries
	Posey Co.	Stargell Corp.	DR	CR	Consolidated
Income Statement
Sales	3010000	781846		3791846	3791846
Other Income	143000	50000		198000	198000
Less: COGS	1829000	426000	2255000		2255000
Less: Depr. & Amort. Expense	184000	65000	249000		249000
Less: Other Expenses	632000	206000	838000		838000
Goodwill Impairment Loss
Gain on Bond Retirement
Income from Stargell Corp.	132660			132660	132660
Consolidated Net Income					780506
NCI in Net Income				78051
Controlling Interest in NI				702455
Statement of Retained Earnings
Beginning Balance
Net Income
Less: Dividends Declared	61000	51000	112000
Ending Balance
Balance Sheet
Assets
Cash	49500	39000	88500		88500
Current Receivables	121500	90100	211600		211600
Inventory	317000	345746	662746		662746
Land	1241000	518000	1759000		1759000
Buildings & Equipment	2940000	1915000	4855000		4855000
Less: Accumulated Depreciation	1050000	597000		1647000	1647000
Investment in Stargell Stock	1243800		1248300		1248300
Investment in Stargell Bonds	985000		985000		985000
Investment in Posey Bonds		200000		200000	200000
Goodwill
Total Assets					9810146
Liabilities & Equity
Current Payables	699190	213000		912190
Bonds Payable	200000	1000000		1200000
Premium on Bonds Payable		3000		3000
Common Stock	910000	487000		1397000
Premium on Common Stock	610000	267000		877000
Retained Earnings	2848950	457000		3305950
NCI in NA of Stargell Corp.
Total Liabilities & Equity				7695140