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Problem 5-2 (LO 2) Cost method, 90%, straight-line bonds. On January 1, 20X1, Patrick Company acquired 90% of the common stock of Stunt Company for $351,000. On this date, Stunt had common stock, other paid-in capital in excess of par, and retained earnings of $100,000, $40,000, and $210,000, respectively. The excess of cost over book value is due to goodwill. In both 20X1 and 20X2, Patrick has accounted for the investment in Stunt using the cost method.
On January 1, 20X1, Stunt sold $100,000 par value of 10-year, 8% bonds for $94,000. The bonds pay interest semiannually on January 1 and July 1 of each year. On December 31, 20X1, Patrick purchased all of Stunt’s bonds for $96,400. The bonds are still held on December 31, 20X2. Both companies have correctly recorded all entries relative to bonds and interest, using straight-line amortization for premium or discount.
The trial balances of Patrick Company and its subsidiary were as follows on December 31, 20X2:
Required
|
|
Patrick Company |
|
Stunt Company |
|
Interest Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
4,000 |
|
|
|
Other Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
248,200 |
|
315,200 |
|
Investment in Stunt Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
351,000 |
|
|
|
Investment in Stunt Bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
96,800 |
|
|
|
Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
80,000 |
|
60,000 |
|
Buildings and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
400,000 |
|
280,000 |
|
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
(120,000) |
|
(60,000) |
|
Interest Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
|
|
(4,000) |
|
Other Current Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
(98,000) |
|
(56,000) |
|
Bonds Payable, 8% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
|
|
(100,000) |
|
Discount on Bonds Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
|
|
4,800 |
|
Other Long-Term Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
(200,000) |
|
|
|
Common Stock, Patrick Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
(100,000) |
|
|
|
Other Paid-In Capital in Excess of Par, Patrick Company . . . . . . . . . . . . |
(200,000) |
|
|
|
Retained Earnings, Patrick Company . . . . . . . . . . . . . . . . . . . . . . . . . . . |
(365,000) |
|
|
|
Common Stock, Stunt Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
|
|
(100,000) |
|
Other Paid-In Capital in Excess of Par, Stunt Company. . . . . . . . . . . . . . |
|
|
(40,000) |
|
Retained Earnings, Stunt Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
|
|
(260,000) |
|
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
(640,000) |
|
(350,000) |
|
Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
360,000 |
|
200,000 |
|
Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
168,400 |
|
71,400 |
|
Interest Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
|
|
8,600 |
|
Interest Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
(8,400) |
|
|
|
Dividend Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
(27,000) |
|
|
|
Dividends Declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
50,000 |
|
30,000 |
|
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
0 |
|
0 |
Prepare the worksheet necessary to produce the consolidated financial statements of Patrick and its subsidiary Stunt for the year ended December 31, 20X2. Round all computations to the nearest dollar.