Question

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.)

Answer 1