On January 1, 2015, Paro Company purchases 80% of the common stock of Solar Company for $320,000. Solar has common stock, other paid-in capital in excess of par, and retained earnings of$50,000, $100,000, and $150,000, respectively. Net income and dividends for two years for Solar are as follows:
2015 |
2016 |
|
---|---|---|
Net income |
$60,000 |
$90,000 |
Dividends |
20,000 |
30,000 |
On January 1, 2015, the only undervalued tangible assets of Solar are inventory and the building. Inventory, for which FIFO is used, is worth $10,000 more than cost. The inventory is sold in 2015. The building, which is worth $30,000 more than book value, has a remaining life of10 years, and straight-line depreciation is used. The remaining excess of cost over book value is attributed to goodwill.
Required
Paro Company |
Solar Company |
|
---|---|---|
Inventory, December 31 |
100,000 |
50,000 |
Other Current Assets |
136,000 |
180,000 |
Investment in Solar Company |
400,000 |
|
Land |
50,000 |
50,000 |
Buildingsand Equipment |
350,000 |
320,000 |
Accumulated Depreciation |
(100,000) |
(60,000) |
Goodwill |
||
Other Intangibles |
20,000 |
|
Current Liabilities |
(120,000) |
(40,000) |
Bonds Payable |
(100,000) |
|
Other Long-Term Liabilities |
(200,000) |
|
Common Stock—Paro Company |
(200,000) |
|
Other Paid-In Capital in Excess of Par—Paro Company |
(100,000) |
|
Retained Earnings—Paro Company |
(214,000) |
|
Common Stock—Solar Company |
(50,000) |
|
Other Paid-In Capital in Excess of Par—Solar Company |
(100,000) |
|
Retained Earnings—Solar Company |
(190,000) |
|
Net Sales |
(520,000) |
(450,000) |
Cost of Goods Sold |
300,000 |
260,000 |
Operating Expenses |
120,000 |
100,000 |
Subsidiary Income |
(72,000) |
|
Dividends Declared—Paro Company |
50,000 |
|
Dividends Declared—Solar Company |
|
30,000 |
Totals |
0 |
0 |
Refer to the preceding information for Paulcraft’s acquisition of Switzer’s common stock. Assume that Paulcraft pays $480,000 for 100% of Switzer common stock. Paulcraft uses the cost method to account for its investment in Switzer. Paulcraft and Switzer have the following trial balances on December 31, 2017 as shown on page 191.
Paulcraft |
Switzer |
|
---|---|---|
Cash |
100,000 |
110,000 |
Accounts Receivable |
90,000 |
55,000 |
Inventory |
120,000 |
86,000 |
Land |
100,000 |
60,000 |
Investment in Switzer |
480,000 |
|
Buildings |
800,000 |
250,000 |
Accumulated Depreciation |
(220,000) |
(80,000) |
Equipment |
150,000 |
100,000 |
Accumulated Depreciation |
(90,000) |
(72,000) |
Current Liabilities |
(60,000) |
(102,000) |
Bonds Payable. |
(100,000) |
|
Common Stock |
(100,000) |
(10,000) |
Paid-In Capital in Excess of Par |
(900,000) |
(90,000) |
Retained Earnings, January 1, 2017 |
(315,000) |
(182,000) |
Sales |
(800,000) |
(350,000) |
Cost of Goods Sold |
450,000 |
210,000 |
Depreciation Expense—Buildings |
30,000 |
15,000 |
Depreciation Expense—Equipment |
15,000 |
14,000 |
Other Expenses |
140,000 |
68,000 |
Interest Expense |
8,000 |
|
Dividend Income |
(10,000) |
|
Dividends Declared |
20,000 |
10,000 |
Totals |
0 |
0 |
Required
Complete Problem 3-2 and Problem 3-10 using the template attached.
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