Pavin acquires all of Stabler’s outstanding shares on January 1, 2009, for $460,000 in cash. Of this amount, $30,000 was attributed to equipment with a 10-year remaining life and $40,000 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, 2012, Pavin reports $300,000 in bonds outstanding with a book value of $282,000. Stabler purchases half of these bonds on the open market for $145,500.
During 2012, Pavin begins to sell merchandise to Stabler. During that year, inventory costing $80,000 was transferred at a price of $100,000. All but $10,000 (at sales price) of these goods were resold to outside parties by year-end. Stabler still owes $33,000 for inventory shipped from Pavin during December.
The following financial figures are for the two companies for the year ending December 31, 2012. Prepare a worksheet to produce consolidated balances. (Credits are indicated by parentheses.)
| Pavin | Stabler |
Revenues | $(740,000) | $(505,000) |
Cost of goods sold | 455,000 | 240,000 |
Expenses | 125,000 | 158,500 |
Interest expense—bonds | 36,000 | –0– |
Interest income—bond investment | –0– | (16,500) |
Loss on extinguishment of bonds | –0– | –0– |
Equity in Stabler’s income | (123,000) | –0– |
Net income | $ (247,000) | $(123,000) |
Retained earnings, 1/1/12 | $ (345,000) |
|
Retained earnings, 1/1/12 |
| $(361,000) |
Net income (above) | (247,000) | (123,000) |
Dividends paid | 155,000 | 61,000 |
Retained earnings, 12/31/12 | $ (437,000) | $(423,000) |
Cash and receivables | $ 217,000 | $ 35,000 |
Inventory | 175,000 | 87,000 |
Investment in Stabler | 613,000 | –0– |
Investment in Pavin bonds | –0– | 147,000 |
Land, buildings, and equipment (net) | 245,000 | 541,000 |
Trademarks | –0– | –0– |
Total assets | $ 1,250,000 | $ 810,000 |
Accounts payable | $ (225,000) | $(167,000) |
Bonds payable | (300,000) | (100,000) |
Discount on bonds | 12,000 | –0– |
Common stock | (300,000) | (120,000) |
Retained earnings (above) | (437,000) | (423,000) |
Total liabilities and stockholders’ equity | $(1,250,000) | $(810,000) |
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