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Argosy University/ Phoniex University/
Nov-2005 - Oct-2011

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Professor
Phoniex University
Oct-2001 - Nov-2016

Category > Management Posted 12 Jan 2018 My Price 10.00

intercompany transactions

Problem 4-6 (LO 3) 80%, equity, ﬁxed asset sales by subsidiary and parent. On September 1, 20X1, Parcel Corporation purchased 80% of the outstanding common stock of Sack Corporation for $152,000. On that date, Sack’s net book values equaled fair values, and there was no excess of cost or book value resulting from the purchase. Parcel has been maintain- ing its investment under the simple equity method.

Over the next 3 years, the intercompany transactions between the companies were as follows:

a. On September 1, 20X1, Sack sold its 4-year-old delivery truck to Parcel for $14,000 in cash. At that time, Sack had depreciated the truck, which had cost $15,000, to its $5,000 salvage value. Parcel estimated on the date of the sale that the asset had a remaining useful life of 3 years and no salvage value.

b. On September 1, 20X2, Parcel sold equipment to Sack for $103,000. Parcel originally paid

$80,000 for the equipment and planned to depreciate it over 20 years, assuming no salvage value. However, Parcel had the property for only 10 years and carried it at a net book value of $40,000 on the sale date. Sack will use the equipment for 10 years, at which time Sack expects no salvage value.

Both companies use straight-line depreciation for all assets.

Trial balances of Parcel Corporation and Sack Corporation as of the August 31, 20X3, year-end are as follows:

	Parcel Corporation	Sack Corporation
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	120,000	50,000
Accounts Receivable (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	115,000	18,000
Notes Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		10,000
Inventory, August 31, 20X3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	175,000	34,000
Investment in Sack Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	217,440
Plant and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	990,700	295,000
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(170,000)	(85,000)
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	28,000
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(80,000)	(50,200)
Notes Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(25,000)
Bonds Payable, 12% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(300,000)
Common Stock ($10 par) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(290,000)	(70,000)
Paid-In Capital in Excess of Par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(110,000)	(62,000)
Retained Earnings, September 1, 20X2 . . . . . . . . . . . . . . . . . . . . . . . . . .	(498,850)	(118,000)
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(920,000)	(240,000)
Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	598,000	132,000
Selling and General Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	108,000	80,000
Subsidiary Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(23,040)
Interest Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		(800)
Interest Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	37,750
Gain on Sale of Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(63,000)
Dividends Declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	90,000	7,000
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	0	0

Prepare the worksheet necessary to produce the consolidated ﬁnancial statements of Parcel Corporation and its subsidiary for the year ended August 31, 20X3. Include the income distri- bution schedules.

Required

Accounts receivable . . . . . . . . .	$ 60,000	Accounts payable . . . . . . . . . . . . .	$ 40,000
Inventory . . . . . . . . . . . . . . . . . .	40,000	Bonds payable . . . . . . . . . . . . . . .	100,000
Land. . . . . . . . . . . . . . . . . . . . . .	60,000	Common stock, $1 par . . . . . . . . .	10,000
Buildings . . . . . . . . . . . . . . . . . .	200,000	Paid-in capital in excess of par . . .	90,000
Accumulated depreciation . . . .	(50,000)	Retained earnings . . . . . . . . . . . . .	112,000
Equipment . . . . . . . . . . . . . . . . .	72,000
Accumulated depreciation . . . .	(30,000)
Total assets. . . . . . . . . . . . . . .	$352,000	Total liabilities and equity . . . . .	$352,000

(continued)

	Polka Company	Sandra Company
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24,000	132,000
Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . .	90,000	45,000
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	120,000	56,000
Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	100,000	60,000
Investment in Sandra . . . . . . . . . . . . . . . . . . . . . . . . . .	472,000
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	800,000	200,000
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . .	(220,000)	(65,000)
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	150,000	72,000
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . .	(90,000)	(46,000)
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(60,000)	(102,000)
Bonds Payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		(100,000)
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(100,000)	(10,000)
Paid-In Capital in Excess of Par . . . . . . . . . . . . . . . . . .	(800,000)	(90,000)
Retained Earnings, January 1, 20X2. . . . . . . . . . . . . .	(325,000)	(142,000)
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(800,000)	(350,000)
Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . . . . . . . .	450,000	208,500
Depreciation Expense—Buildings . . . . . . . . . . . . . . . .	30,000	7,500
Depreciation Expense—Equipment. . . . . . . . . . . . . . .	15,000	8,000
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	160,000	98,000
Interest Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		8,000
Gain on Sale of Fixed Asset. . . . . . . . . . . . . . . . . . . . .	(20,000)
Subsidiary Income. . . . . . . . . . . . . . . . . . . . . . . . . . . .	(16,000)
Dividends Declared . . . . . . . . . . . . . . . . . . . . . . . . . . .	20,000	10,000
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	0	0

Required

Answers

Maurice Tutor

(5)

Status NEW Posted 12 Jan 2018 10:01 PM My Price 10.00

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