Maurice Tutor
$15/per page/Negotiable
Problem 8-10 (LO 5) Worksheet, purchase in blocks, subsidiary stock dividend, subsidiary purchase of parent shares, machinery sale, merchandise. On January 1, 20X3, Heckert Company purchases a controlling interest in Aker Company. The following information is available:
a. Heckert Company purchases 1,600 shares of Aker Company outstanding stock on January 1, 20X2, for $48,000 and purchases an additional 1,400 shares on January 1, 20X3, for
$51,800.
b. An analysis of the stockholders’ equity accounts at December 31, 20X2, and 20X1, follows:
Required
Heckert Company December 31,
Aker Company December 31,
|
|
20X2 |
|
20X1 |
|
20X2 |
|
20X1 |
|
Common stock ($10 par). . . . . . . . . . . Common stock ($5 par). . . . . . . . . . . . |
$150,000 |
|
$150,000 |
|
$ 20,000 |
|
$ 20,000 |
|
Paid-in capital in excess of par . . . . . . |
36,000 |
|
36,000 |
|
10,000 |
|
10,000 |
|
Retained earnings . . . . . . . . . . . . . . . . |
378,000 |
|
285,000 |
|
112,000 |
|
82,000 |
|
Total . . . . . . . . . . . . . . . . . . . . . . . . |
$564,000 |
|
$471,000 |
|
$142,000 |
|
$112,000 |
c. Aker Company’s marketable securities consist of 1,500 shares of Heckert Company stock purchased on June 15, 20X3, in the open market for $18,000. The securities are purchased as a temporary investment and are sold on January 15, 20X4, for $25,000.
d. On December 10, 20X3, Heckert Company declares a cash dividend of $0.50 per share, payable January 10, 20X4, to stockholders of record on December 20, 20X3. Aker Com- pany pays a cash dividend of $1 per share on June 30, 20X3, and distributes a 10% stock dividend on September 30, 20X3. The stock is selling for $15 per share ex-dividend on Sep- tember 30, 20X3. Aker Company pays no dividends in 20X2.
e. Aker Company sells machinery, with a book value of $4,000 and a remaining life of five years, to Heckert Company for $4,800 on December 31, 20X3. The gain on the sale is cred- ited to the other income account.
f. Aker Company includes all intercompany receivables and payables in its trade accounts receiv- able and trade accounts payable accounts.
|
g. During 20X3, the following intercompany sales are made: |
|
Included in |
|
|
|
Purchaser’s |
|
|
|
Inventory at |
|
|
Net Sales |
December 31, 20X3 |
|
Heckert Company to Aker Company. . . . . . . . . . . . . . . . . . . |
$ 78,000 |
$24,300 |
|
Aker Company to Heckert Company. . . . . . . . . . . . . . . . . . . |
104,000 |
18,000 |
|
|
$182,000 |
$42,300 |
Heckert Company sells merchandise to Aker Company at cost. Aker Company sells mer- chandise to Heckert at the regular selling price to make a normal profit margin of 30%. There were no intercompany sales in prior years.
The trial balances of the two companies at December 31, 20X3, are as follows:
|
|
Heckert Company |
|
Aker Company |
|
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
38,100 |
|
29,050 |
|
Marketable Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
33,000 |
|
18,000 |
|
Trade Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
210,000 |
|
88,000 |
|
Allowance for Doubtful Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
(6,800) |
|
(2,300) |
|
Intercompany Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
24,000 |
|
|
|
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
275,000 |
|
135,000 |
|
Machinery and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
514,000 |
|
279,000 |
|
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
(298,200) |
|
(196,700) |
|
Investment in Aker Company (at cost) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
99,800 |
|
|
|
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
35,000 |
|
|
|
Dividends Payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
(7,500) |
|
|
|
Trade Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
(195,500) |
|
(174,050) |
|
Intercompany Payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
(8,000) |
|
|
|
Common Stock ($10 par) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
(150,000) |
|
|
|
Common Stock ($5 par) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
|
|
(22,000) |
|
Paid-In Capital in Excess of Par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
(36,000) |
|
(14,000) |
|
Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
(378,000) |
|
(106,000) |
|
Dividends Declared (cash). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
7,500 |
|
4,000 |
|
Sales and Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
(850,000) |
|
(530,000) |
|
Dividend Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
(3,000) |
|
|
|
Other Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
(9,000) |
|
(3,700) |
|
Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
510,000 |
|
374,000 |
|
Depreciation Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
65,600 |
|
11,200 |
|
Administrative and Selling Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
130,000 |
|
110,500 |
|
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
0 |
|
0 |
Required
Prepare the worksheet necessary to produce the consolidated financial statements of Heck- ert Company and its subsidiary for the year ended December 31, 20X3. Include the determina- tion and distribution of excess and income distribution schedules. Assume any excess of cost over book value is attributable to goodwill.
(AICPA adapted)
The entries to record the formation of New Company and acquire Former Company are as follows:
Formation of New Company
|
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Common Stock, No Par (2,000 shares). . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
40,000 |
40,000 |
|
Borrowing of $240,000 |
|
|
|
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
240,000 |
|
|
Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
|
240,000 |
|
Acquisition of Former Company |
|
|
|
Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
100,000 |
|
|
Land and Buildings ($200,000 þ $75,000) . . . . . . . . . . . . . . . . . . . . . . . . . . |
275,000 |
|
|
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
50,000 |
|
|
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
20,500 |
|
|
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
|
80,000 |
|
Cash (6,500 x $40) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Common Stock, No Par (7,000 shares in exchange for 2,500 |
|
260,000 |
|
Former shares x $27 and 1,000 Former shares x $38). . . . . . . . . . . . . . |
|
105,500 |