Problem 4A-1 (LO 2, 3, 7) Vertical worksheet, 100%, cost, fixed asset and mer- chandise sales. Arther Corporation acquired all of the outstanding $10 par voting common stock of Trent Inc. on January 1, 20X2, in exchange for 50,000 shares of its $10 par voting

 

 

 

common stock. On December 31, 20X1, the common stock of Arther had a closing market price of $15 per share on a national stock exchange. The retained earnings balance of Trent Inc. was $156,000 on the date of the acquisition. Both companies continued to operate as separate business entities maintaining separate accounting records with years ending December 31.

On December 31, 20X4, after year-end adjustments but before the nominal accounts were closed, the companies had the following condensed statements:

 

	Arther Corporation		Trent Inc.
Income Statement:
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$(1,900,000)		$(1,500,000)
Dividend Income (from Trent Inc.) . . . . . . . . . . . . . . . . . . . . . . . .	(40,000)
Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1,180,000		870,000
Operating Expenses (includes depreciation). . . . . . . . . . . . . . . .	550,000		440,000
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$  (210,000)		$   (190,000)
Retained Earnings:
Retained Earnings, January 1, 20X4 . . . . . . . . . . . . . . . . . . . . . .	$  (250,000)		$   (206,000)
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(210,000)		(190,000)
Dividends Paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			40,000
Balance, December 31, 20X4 . . . . . . . . . . . . . . . . . . . . . . . . .	$  (460,000)		$   (356,000)
Balance Sheet: Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$       285,000		$       150,000
Accounts Receivable (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	430,000		350,000
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	530,000		410,000
Land, Building, and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . .	660,000		680,000
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(185,000)		(210,000)
Investment in Trent Inc. (at cost) . . . . . . . . . . . . . . . . . . . . . . . . . .	750,000
Accounts Payable and Accrued Expenses . . . . . . . . . . . . . . . . . .	(670,000)		(544,000)
Common Stock ($10 par) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(1,200,000)		(400,000)
Additional Paid-In Capital in Excess of Par . . . . . . . . . . . . . . . . .	(140,000)		(80,000)
Retained Earnings, December 31, 20X4. . . . . . . . . . . . . . . . . . .	(460,000)		(356,000)
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$                          0		$                          0
Additional information is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Required

 

a.    There have been no changes in the common stock and additional paid-in capital in excess of par accounts since the one necessitated in 20X2 by Arther’s acquisition of Trent Inc.

b.    At the acquisition date, the market value of Trent’s machinery exceeded book value by

$54,000. This excess is being amortized over the asset’s estimated average remaining life of 6 years. The fair values of Trent’s other assets and liabilities were equal to book values. Any remaining excess is goodwill.

c.    On July 1, 20X2, Arther sold a warehouse facility to Trent for $129,000 in cash. At the date of sale, Arther’s book values were $33,000 for the land and $66,000 for the building. Trent allocated the $129,000 purchase price to the land for $43,000 and to the building for

$86,000. Trent is depreciating the building over its estimated 5-year remaining useful life by the straight-line method with no salvage value.

d.    During 20X4, Arther purchased merchandise from Trent at an aggregate invoice price of

$180,000, which included a 100% markup on Trent’s cost. At December 31, 20X4, Arther owed Trent $75,000 on these purchases, and $36,000 of the merchandise purchased remained in Arther’s inventory.

Complete the vertical worksheet necessary to prepare the consolidated income statement and retained earnings statement for the year ended December 31, 20X4, and a consolidated balance sheet as of December 31, 20X4, for Arther Corporation and its subsidiary.  Formal

 

 

 

consolidated statements and journal entries are not required. Include the determination and dis- tribution of excess schedule and the income distribution schedules.

(AICPA adapted)