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 Liabilitiesand 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-in capital in excess of par . . . 90,000
Equipment .. .. …… … … 120,000
Accumulated depreciation … (60,000) Retained earnings .. …. .. .. . . . 115,000
Total assets.. …… … … $355,000 Total liabilities 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.
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.
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