Problem

Pavin acquires all of Stabler’s outstanding shares on January 1, 2011, for $460,000 in cas...

Pavin acquires all of Stabler’s outstanding shares on January 1, 2011, 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, 2014, 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 2014, 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 31,2014. 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, 1/1/14

$(345,000)

$(361,000)

Net income (above)

(247,000)

(123,000)

Dividends paid

155,000

61,000

Retained earnings, 12/31/14

$(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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