Question

Pavin acquires all of Stabler’s outstanding shares on January 1, 2015, for $530,000 in cash. Of this amount, $37,000 was attributed to equipment with a 10-year remaining life and $47,000 was assigned to trademarks expensed over a 20-year period. Pavin applies the partial equity method so that income is accrued each period based solely on the earnings reported by the subsidiary.

On January 1, 2018, Pavin reports $370,000 in bonds outstanding with a carrying amount of $349,200. Stabler purchases half of these bonds on the open market for $179,800.

During 2018, Pavin begins to sell merchandise to Stabler. During that year, inventory costing $108,000 was transferred at a price of $135,000. All but $17,000 (at sales price) of these goods were resold to outside parties by year-end. Stabler still owes $40,000 for inventory shipped from Pavin during December.

The following financial figures are for the two companies for the year ending December 31, 2018. Dividends were both declared and paid during the current year.

	Pavin				Stabler
Revenues	$	(761,000	)		$	(519,000	)
Cost of goods sold		462,000				247,000
Expenses		132,000				165,500
Interest expense—bonds		43,000				0
Interest income—bond investment		0				(21,050	)
Loss on extinguishment of bonds		0				0
Equity in Stabler’s income		(127,550	)			0
Net income	$	(251,550	)		$	(127,550	)
Retained earnings, 1/1/18	$	(352,000	)		$	(375,000	)
Net income		(251,550	)			(127,550	)
Dividends paid		162,000				84,000
Retained earnings, 12/31/18	$	(441,550	)		$	(418,550	)
Cash and receivables	$	224,000			$	42,000
Inventory		182,000				94,000
Investment in Stabler		629,550				0
Investment in Pavin bonds		0				180,250
Land, buildings, and equipment (net)		252,000				548,000
Trademarks		0				0
Total assets	$	1,287,550			$	864,250
Accounts payable	$	(179,000	)		$	(211,700	)
Bonds payable		(370,000	)			(107,000	)
Discount on bonds		19,000				0
Common stock		(316,000	)			(127,000	)
Retained earnings (above)		(441,550	)			(418,550	)
Total liabilities and stockholders’ equity	$	(1,287,550	)		$	(864,250	)

Note: Credits are indicated by parentheses.

Prepare a worksheet to produce consolidated balances.

PAVIN AND STABLER Consolidation Worksheet For Year Ending December 31, 2018 Consolidation Entries Consolidated Accounts Pavin Stabler Debit Credit Totals Revenues $(761,000) $(519,000) Cost of goods sold 462,000 247,000 Expenses 132,000 165,500 Interest expense—bonds 43,000 0 Interest income—bond investment 0 (21,050) Loss on extinguishment of bonds 0 0 Equity in income of Stabler (127,550) 0 Net income $(251,550) $(127,550) $0 Retained earnings, 1/1/18 (352,000) Retained earnings, 1/1/18 (375,000) Net income (251,550) (127,550) 0 Dividends paid 162,000 84,000 Retained earnings, 12/31/18 $(441,550) $(418,550) $0 Cash and receivables $224,000 $42,000 Inventory 182,000 94,000 Investment in Stabler 629,550 0 Investment in Pavin 0 180,250 Land, buildings, and equipment (net) 252,000 548,000 Trademarks 0 0 Total assets $1,287,550 $864,250 $0 Accounts payable (179,000) (211,700) Bonds payable (370,000) (107,000) Discount on bonds 19,000 0 Common stock (316,000) (127,000) Retained earnings (441,550) (418,550) 0 Total liabilities and stockholders’ equity $(1,287,550) $(864,250) $0 $0 $0

Answer 1

Pavin ans Stabler
Consolidation Worksheet
For Year Ending December 31,2018
			Consolidation Entries		Consolidation
Accounts	Pavin	Stabler	Debit	Credt	Totals
Revenues	$     (758,000)	$ (517,000)		$ 1,275,000	$      1,275,000
Cost of Goods Sold	$       461,000	$   246,000	$                         707,000		$       (707,000)
Expenses	$       131,000	$   164,500	$                         295,500		$       (295,500)
Interest Expense - bonds	$         42,000	$               -	$                            42,000		$          (42,000)
Interest Income - bond investment	$                   -	$   (20,400)		$        20,400	$            20,400
Loss on estinguishment of bonds	$                   -	$               -		$                 -	$                     -
Equity in income of Stabler	$     (126,900)	$               -			$                     -
Net Income	$     (250,900)	$ (126,900)			$          250,900
Retained earnings, 1/1/18	$     (351,000)				$          351,000
Retained earnings, 1/1/18		$ (373,000)
Net Income	$     (250,900)	$ (126,900)			$          250,900
Dividends Paid	$       161,000	$      83,000	$                         244,000		$       (244,000)
Retained Earnings,12/31/18	$     (440,900)	$ (416,900)			$          357,900
Cash and Cash Equivalents	$       223,000	$      41,000	$                         264,000		$          264,000
Inventory	$       181,000	$      93,000	$                         274,000		$          274,000
Investment in stabler	$       624,900
Investment in Pavin		$   175,500
Land, buildings, and Equipment (net)	$       251,000	$   547,000	$                         798,000		$          798,000
Trademarks	$                   -	$               -	$                                     -		$                     -
Goodwill			$                         174,500		$          174,500
Total Assets	$   1,279,900	$   856,500	$                      1,336,000		$      1,510,500
Accounts Payable	$     (182,000)	$ (207,600)		$     389,600	$          389,600
Bonds Payable	$     (360,000)	$ (106,000)		$     466,000	$          466,000
Discount on bonds	$         18,000	$               -	$                            18,000		$          (18,000)
Common Stock	$     (315,000)	$ (126,000)		$     315,000	$          315,000
Retained Earnings	$     (440,900)	$ (416,900)		$     357,900	$          357,900
Total liabillities and stockholders' Equity	$ (1,279,900)	$ (856,500)			$      1,510,500