accounting help 1858042 2

 

problem 8-6 (LO 4) Worksheet, direct and indirect holding, intercompany mer-

 

chandise,  machine. The  following  diagram  depicts  the  relationships  among  Mary

 

Company, John Company, and Joan Company on December 31, 2014:

 

Mary                         John

 

Owns 60%           Owns 40%

 

  Joan

 

Owns 50%

 

Mary Company purchases its interest in John Company on January 1, 2012, for $204,000.

 

John Company purchases its interest in Joan Company on January 1, 2013, for $75,000. Mary

 

Company purchases its interest in Joan Company on January 1, 2014, for $72,000. All invest-

 

ments are accounted for under the equity method. Control over Joan Company does not occur

 

until the January 1, 2014, acquisition. Thus, a D&D schedule will be prepared for the invest-

 

ment in Joan as of January 1, 2014.

 

The following stockholders’ equities are available:

 

                                                                            John                                      Joan

 

                                                                        Company

 

                                                                    December31      ,                         December 31

 

                                                                               2011         2012                 2013

 

 Commonstock ($10par). ……….. …………   $150,000

 

Commonstock ($10par). ……….. …………     $100,000                              $100,000

 

Paid-incapitalinexcess of par …………. …..      75,000

 

Retained earnings ………………………..           75,000           50,000             80,000

 

Totalequity ……… ……….. …………                $300,000     $150,000         $180,000

 

 

 

On January 2, 2014, Joan Company sells a machine to Mary Company for $20,000. The

 

machine has a book value of $10,000, with an estimated life of five years and is being depre-

 

ciated on a straight-line basis.

 

John Company sells $20,000 of merchandise to Joan Company during 2014 to realize a gross

 

profit of 30%. Of this merchandise, $5,000 remains in Joan Company’s December 31, 2014,

 

inventory. Joan owes John $3,000 on December 31, 2014, for merchandise delivered during

 

2014.

 

Trial balances of the three companies prepared from general ledger account balances on    December 31, 2014, are as follows:                                                                                                        

 

 

 

 

 

 

 

                                                                             Mary                  John                    Joan

 

 

 

Cash …………………. ……….. ……                    62,500             60,000              30,000

 

Accounts Receivable ……………………… 200,000                55,000              30,000

 

Inventory ………………. ……….. ……         360,000                80,000               50,000

 

Investmentin JohnCompany……….. …….. 270,000

 

Investmentin JoanCompany……….. ………. 86,000            107,500

 

Property, Plant,andEquipment…. ……….. …2,250,000     850,000                350,000

 

Accumulated Depreciation ……. ……….. …. (938,000)      (377,500)            (121,800

 

 

 

 

 

 

 

                                                                      Mary                         John                   Joan

 

 

 

Intangibles…. ……….. ……….. ………        15,000

 

Accounts Payable …………… ……….. …   (215,500)            (61,000)               (22,000)

 

AccruedExpenses…………… ……….. …   (12,000)               (4,000)                (1,200)

 

BondsPayable. ……….. ……….. ………      (500,000)            (300,000)            (100,000)

 

Common Stock($5par) ……………………  (500,000)

 

Common Stock($10par) ………………….. (150,000)

 

Common Stock($10par) ………………….. (100,000)

 

Paid-In Capital inExcessof Par …… ……….. (700,000)         (75,000)

 

RetainedEarnings, January1, 2014…….. . (290,000)            (130,000)            (80,000)

 

Sales .. ……….. ……………………..               (1,800,000)             (500,000)            (300,000)

 

Gainon SaleofEquipment ……… ……….. ..    (10,000)

 

SubsidiaryIncome…………… ……….. …              (58,000)             (20,000)

 

CostofGoods Sold ………….. ……….. …               1,170,000            350,000                180,000

 

OtherExpenses …………….. ……….. …                  525,000             100,000                90,000

 

Dividends Declared………….. ……….. …                  75,000            15,000                  5,000

 

Totals ……….. ……………………..                                     0                             0                            0

 

Prepare the worksheet necessary to produce the consolidated financial statements of Mary

 

Company and its subsidiaries as of December 31, 2014. Include the determination and distri-

 

bution of excess and income distribution schedules. Any excess of cost is assumed to be attribu-

 

table to goodwill.