ACC Problem 8-4 (LO 2) Worksheet, subsidiary stock sale with parent purchase,

Problem 8-4 (LO 2) Worksheet, subsidiary stock sale with parent purchase,

Inter-company merchandise. On January 1, 2012, Mitta Corporation acquires a 60% interest (12,000 shares) in Train Company for $156,000. Train stockholders’ equity on the purchase date is as follows:

Common stock ($5par)......... ........... ....... $100,000

Paid-incapital in excess of par ..................... 50,000

Retained earnings ............................... 80,000

Total stockholders’ equity...... ........... ....... $230,000

At the purchase date, Train’s book values for assets and liabilities closely approximate fair values. Any excess of cost over book value is attributed to goodwill.

On January 1, 2013, Train Company sells 5,000 shares of common stock in a public offering at $20 per share. Mitta Corporation purchases 4,000 shares.

During 2013, Mitta sells $30,000 of goods to Train at a gross pro?t of 25%. There are

$6,000 of Mitta goods in Train’s beginning inventory and $8,000 of Mitta goods in Train’s ending inventory.

Merchandise sales by Train to Mitta are $20,000 during 2013 at a gross pro?t of 30%.

There are $6,000 of Train goods in Mitta’s beginning inventory and $2,000 of Train goods in Mitta’s ending inventory.

Intercompany gross pro?t rates have been constant for many years. There are no intercompany payables/receivables.

Mitta’s investment in Train Company balance is determined as follows:

Original cost ........................................................ .... $156,000

60%of Train 2012 income ($40,000 60%).... ........... ........... 24,000

Subtotal ........ ........... ... ........ ... ........ ........... .......... $180,000

Less60%ofTrain dividends declared in2012(60% $8,000) ........ (4,800)

Subtotal ........ ........... ... ........ ... ........ ........... .......... $175,200

Cost to acquire additional shares (new issue) ..... ........... ........... ........ 80,000

64%ofTrain 2013income ($50,000 Â64%).... ........... ........... ........ 32,000

Subtotal ........ ........... ... ........ ... ........ ........... .......... $287,200

Less64%ofTrain dividends declared in2013(64% Â$10,000)....... ........... . (6,400)

Investment balance, December31,2013........... ........... ........... ... $280,800

The trial balances of the two companies as of December 31, 2013, are as follows:

Mitta Train

Corporation Company

Cash ............ ........... ........... ........... ....... 106,200 63,500

Accounts Receivable ........... ........... ........... ....... 113,600 60,000

Inventory ......... ........... ........... ........... ....... 350,000 80,000

InvestmentinTrain Company ...... ........... ........... ... .280,800

Property,Plant, andEquipment..... ........... ........... ... 1,800,000 360,000

Accumulated Depreciation ........ ........... ........... ... . (600,000) (89,500)

Accounts Payable ....... ........... ........... ........... .. (180,000) (64,000)

Other CurrentLiabilities......... ........... ........... ...... (26,000) (8,000)

BondsPayable............................................. (500,000)

Mitta Train

Corporation Company

Company

CommonStock($10 par) .......... ........... ........... .... (1,000,000)

CommonStock($5par) ..... ........... ........... .......... (125,000)

Paid-In Capital inExcess ofPar ...... ........... ........... ..(125,000)

Retained Earnings,January 1,2013......... ........... ...... (212,600) (112,000)

Sales ....... ........... ........... ........... ............ (1,950,000) (600,000)

Subsidiary Income.......... ........... ........... .......... (32,000)

Costof GoodsSold ......... ........... ........... .......... 1,170,000 420,000

Other Expenses . ........... ........... ........... .......... 630,000 130,000

Dividends Declared.... ........... ........... ........... .... 50,000 10,000

Totals ..... ........... ........... ........... ............ 0 0

Prepare the worksheet necessary to produce the consolidated ?nancial statements of Mitta Corporation and its subsidiary as of December 31, 2013. Include the determination and distribution of excess and income distribution schedule.