ACC Week 5 Problems 5-4 and 5-5 - Packard Company

Use the following information for Problems 5-4 and 5-5:

On January 1, 20X4, Packard Company acquired an 80% interest in the common stock

of Stackner Company for $350,000. Stackner had the following balance sheet on the date

of acquisition:

StacknerCompany

Balance Sheet

January1, 20X4

Assets Liabilities and Equity

Accountsreceivable .. ... ... $ 40,000 Accounts payable .. .... .. .. . . . $ 42,297

Inventory . .. .. ...... ... ... 20,000 Bonds payable . . .. .... .. .. . . . 100,000

Land.. .. . .. .. ...... ... ... 35,000 Discount on bondspayable. .. . . . (2,297)

Buildings . .. .. ...... ... ... 250,000 Common stock,$10 par . .. .. . . . 10,000

Accumulated depreciation ... (50,000) Paid-incapital in excess of par . . . 90,000

Equipment .. .. ...... ... ... 120,000

Accumulated depreciation ... (60,000) Retained earnings .. .... .. .. . . . 115,000

Total assets.. ...... ... ... $355,000 Totalliabilities and equity .. . . . $355,000

Buildings (20-year life) are undervalued by $75,000. Equipment (?ve-year life) is

undervalued by $60,000. Any remaining excess is considered to be goodwill.

Problem 5-4 (LO 2) 80%, equity, straight-line bonds purchased this year, inven-

tory pro?ts. Refer to the preceding facts for Packard’s acquisition of 80% of Stackner’s com-

mon stock. Packard uses the simple equity method to account for its investment in Stackner.

On January 1, 20X5, Stackner held merchandise acquired from Packard for $15,000. During

20X5, Packard sold $50,000 worth of merchandise to Stackner. Stackner held $20,000 of this

merchandise at December 31, 20X5. Stackner owed Packard $10,000 on December 31 as a

result of these intercompany sales. Packard has a gross pro?t rate of 30%.

Stackner issued $100,000 of 8%, 10-year bonds for $96,719 on January 1, 20X1. Annual

interest is paid on December 31. Packard purchased the bonds on January 1, 20X5 for

$100,930. Both companies use the straight-line method to amortize the premium/discount on

the bonds. Packard and Stackner used the following bond amortization schedules:

Stackner Packard

Period Cash Interest Balance Period Cash Interest Balance

Jan.X1 $ 96,719 Jan.X1

Jan.X2 $8,000 $8,328 97,047 Jan.X2

Jan.X3 8,000 8,328 97,375 Jan.X3

Jan.X4 8,000 8,328 97,703 Jan.X4

Jan.X5 8,000 8,328 98,031 Jan.X5 $100,930

Jan.X6 8,000 8,328 98,360 Jan.X6 $8,000 $7,845 100,775

Jan.X7 8,000 8,328 98,688 Jan.X7 8,000 7,845 100,620

Jan.X8 8,000 8,328 99,016 Jan.X8 8,000 7,845 100,465

Jan.X9 8,000 8,328 99,344 Jan.X9 8,000 7,845 100,310

Jan.Y0 8,000 8,328 99,672 Jan.Y0 8,000 7,845 100,155

Jan.Y1 8,000 8,328 100,000 Jan.Y1 8,000 7,845 100,000

Packard and Stackner had the following trial balances on December 31, 20X5:

Packard

Company Stackner

Company

Cash .. .... .. . . .. . .. .... .. .. .. . .. . . . . .. . . ... .. .... .. . . . . . .. . 71,070 32,032

Accounts Receivable . .. .. .... .. ... . . .. . . . . .. . .. .. .. .... .. . .. . . . 90,000 60,000

Inventory ... .. . . .. . .. .... .. .. .. . .. . . . . .. . . ... .. .... .. . . . . . .. . 100,000 30,000

Land. .. .. .. . . . . .. . .. .. .. .... .. . .. . . .. . . . . . .. .... .. . . . . . .. . . . 150,000 45,000

Investment inStackner.. .. .... .. ... . . .. . . . . .. . .. .. .. .... .. . .. . . . 385,738

Investment inStackner Bonds. .... .. . .. . . .. . . . . . .. .. .. .. .... . .. . . . 100,775

Buildings ... .. . . .. . .. .... .. .. .. . .. . . . . .. . . ... .. .... .. . . . . . .. . 500,000 250,000

Accumulated Depreciation .. .... .. . .. . . .. . . . . . .. .. .. .. .... . .. . . . (300,000) (70,000)

Equipment .. .. . . . . . .. .... .. .... . .. . . . . .. . . . .. .. .... .. . . . . . .. . 200,000 120,000

Accumulated Depreciation .. .... .. . .. . . .. . . . . . .. .. .. .. .... . .. . . . (100,000) (84,000)

Accounts Payable . . ... .. .. .. .. .. . . . .. . . .. .. . .... .. .. .. .. . . . . . . (55,000) (25,000)

Bonds Payable. . . . . . .. .... .. .... . .. . . . . .. . . . .. .. .... .. . . . . . .. . (100,000)

Discount onBonds Payable.. .. .. ... . . . . .. . . .. . .. .... .. .. .. . .. . . . 1,640

Common Stock .. . . ... .. .. .. .. .. . . . .. . . .. .. . .... .. .. .. .. . . . . . . (100,000) (10,000)

Paid-In Capital in Excessof Par ... .. . .. . . .. . . . . . .. .. .. .. .... . .. . . . (600,000) (90,000)

RetainedEarnings, Jan. 1,20X5.. .. . .. . . .. . . . . . .. .. .. .. .... . .. . . . (400,000) (145,000)

Sales .. .... .. . . .. . .. .... .. .. .. . .. . . . . .. . . ... .. .... .. . . . . . .. . (600,000) (220,000)

Cost ofGoods Sold . ... .. .. .. .. .. . . . .. . . .. .. . .... .. .. .. .. . . . . . . 410,000 120,000

Depreciation Expense—Buildings. .. . .. . . . . .. . . . . . .. .... .. .. . . . .. 30,000 10,000

Depreciation Expense—Equipment.. . .. . . . . .. . . . . . .. .... .. .. . . . .. .15,000 12,000

Other Expenses . .. .. ... .. .. .. . . .. . .. .. .. .. .. .. . .. . . .. . . . . .. . .. 110,000 45,000

Interest Revenue. .. .. ... .. .. .. . . .. . .. .. .. .. .. .. . .. . . .. . . . . .. . .. (7,845)

Interest Expense. .. .. ... .. .. .. . . .. . .. .. .. .. .. .. . .. . . .. . . . . .. . .. 8,328

Subsidiary Income. .. ... .. .. .. . . .. . .. .. .. .. .. .. . .. . . .. . . . . .. . .. (19,738)

Dividends Declared.. .. . .... .. . . . . . .. .... .. .... . .. . . . . .. . . . . . .. 20,000 10,000

Total. ... .. . . .. .... ... .. . . .. ... .... .. .. .. . . . . . .. .. . . .. ... .. 0 0

Prepare the worksheet necessary to produce the consolidated ?nancial statements for Pack-

ard Company and its subsidiary Stackner Company for the year ended December 31, 20X5.

Include the determination and distribution of excess and income distribution schedules.