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In: Accounting

Pannier Company is the parent company that owns an 80% interest in Jodestar Company. The interest...

Pannier Company is the parent company that owns an 80% interest in Jodestar Company. The interest was acquired at book value, and the simple equity method is used to record the ownership interest. The trial balances of the two companies on December 31, 2016, were as follows:

Pannier Company

Jodestar Company

Cash

258,000

100,000

Inventory

150,000

40,000

Other Current Assets

50,000

160,000

Investment in Jodestar

316,000

Plant and Equipment

650,000

500,000

Accumulated Depreciation

(300,000)

(200,000)

Current Liabilities

(40,000)

(5,000)

Long-Term Debt

(200,000)

Common Stock (par)

(300,000)

(100,000)

Retained Earnings

(746,000)

(285,000)

Sales

(150,000)

(170,000)

Cost of Goods Sold

90,000

130,000

Expenses

30,000

10,000

Interest Expense

20,000

Subsidiary Income

  (8,000)

        

  Totals

        0

        0

As the year ended, Pannier was planning to transfer a major piece of equipment to Jodestar. The equipment was just purchased by Pannier and is included in its inventory account. The equipment cost Pannier $100,000 and would be transferred to Jodestar for $125,000. There are two options as follows:

a. Sell the equipment to Jodestar for $125,000 and finance it with a 5-year, 10% interest installment note.

b. Lease the equipment to Jodestar on a 5-year lease requiring payments of $29,977 in advance.

Required

2. Prepare a consolidated income statement and balance sheet for the company for 2016. (Note: The effect of the equipment sale is not included in the trial balance.)

Solutions

Expert Solution

ekkarill92 answered 1 year ago
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