Supporting Computations

General

You are the accountant for Posey Company. Prepare computations, consolidation entries, and consolidation entries for the preparation of consolidated financial statements for 20X7. Show your calculations.

Supporting Computations

  1. Compute the amount of the goodwill as of January 1, 20X7.
  2. Compute the balance of Posey’s Investment in Stargell Stock account as of January 1, 20X7. (Do not round your intermediate calculations. Round your final answer to nearest whole dollar.)
  3. Compute the income that should be assigned to the noncontrolling interest in the 20X7 consolidated income statement. (Do not round your intermediate calculations. Round your final answer to nearest whole dollar.)
  4. Compute the total noncontrolling interest as of December 31, 20X6. (Do not round your intermediate calculations. Round your final answer to nearest whole dollar.)
  5. Compute the gain or loss on the constructive retirement of Stargell’s bonds that should appear in the 20X7 consolidated income statement. (Do not round your intermediate calculations. Round your final answer to nearest whole dollar.)
  6. Present all consolidation entries that would appear in a three-part consolidation worksheet as of December 31, 20X7. (If no entry is required for a transaction/event, select “No journal entry required” in the first account field. Do not round your intermediate calculations. Round your final answers to nearest whole dollar.)
  7. Prepare and complete a three-part worksheet for the preparation of consolidated financial statements for 20X7. (Values in the first two columns (the “parent” and “subsidiary” balances) that are to be deducted should be indicated with a minus sign, while all values in the “Consolidation Entries” columns should be entered as positive values. For accounts where multiple adjusting entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet.).

Financial Information for this Milestone:

Refer to Trial Balance 2017 information (red tab)

  • Posey Manufacturing Company acquired 90% of Stargell Corporation’s outstanding common stock on December 31, 20X5, for $1,116,900. At that date, the fair value of the non controlling interest was $124,100, and Stargell reported common stock outstanding of $487,000, premium on common stock of $267,000, and retained earnings of $407,000. The book values and fair values of Stargell’s assets and liabilities were equal except for land, which was worth $30,000 more than its book value.
  • On April 1, 20X6, Posey issued at par $200,000 of 10% bonds directly to Stargell; interest on the bonds is payable March 31 and September 30. On January 2, 20X7, Posey purchased all of Stargell’s outstanding 10-year, 12% bonds from an unrelated institutional investor at 98. The bonds originally had been issued on January 2, 20X1, for 101. Interest on the bonds is payable December 31 and June 30.
  • Since the date it was acquired by Posey Manufacturing, Stargell has sold inventory to Posey on a regular basis. The amount of such inter company sales totaled $67,000 in 20X6 and $83,000 in 20X7, including a 30% gross profit. All inventory transferred in 20X6 had been resold by December 31, 20X6, except inventory for which Posey had paid $18,000 and did not resell until January 20X7. All inventory transferred in 20X7 had been resold at December 31, 20X7, except merchandise for which Posey had paid $16,667
  • As of December 31, 20X7, Stargell had declared but not yet paid its fourth-quarter dividend of $12,750. Both Posey and Stargell use straight-line depreciation and amortization, including the amortization of bond discount and premium. On December 31, 20X7, Posey’s management reviewed the amount attributed to goodwill as a result of its purchase of Stargell common stock and concluded that an impairment loss in the amount of $25,000 had occurred during 20X7 and should be shared proportionately between the controlling and non controlling interests. Posey uses the fully adjusted equity method to account for its investment in Stargell.

On December 31, 20X7, trial balances for Posey and Stargell appeared as follows:

ItemDebitCreditDebitCredit
Cash$49,500$39,000
Current Receivables121,50090,100
Inventory317,000364,900
Investment in Stargell Stock1,243,800
Investment in Stargell Bonds985,000
Investment in Posey Bonds200,000
Land1,241,000518,000
Buildings & Equipment2,940,0001,915,000
Cost of Goods Sold1,829,000426,000
Depreciation & Amortization184,00065,000
Other Expenses632,000206,000
Dividends Declared61,00051,000
Accumulated Depreciation$1,050,000$597,000
Current Payables699,190213,000
Bonds Payable200,0001,000,000
Premium on Bonds Payable3,000
Common Stock910,000487,000
Premium on Common Stock610,000267,000
Retained Earnings, January 12,848,950457,000
Sales3,010,000801,000
Other Income143,00050,000
Income from Stargell Corp.132,660
Total$9,603,800$9,603,800$3,875,000$3,875,000

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