ACC Problem 8-4 (LO 2) Worksheet, subsidiary stock sale with parent purchase,

Problem 8-4 (LO 2) Worksheet,
subsidiary stock sale with parent purchase,
Inter-company merchandise. On January 1, 2012,
Mitta Corporation acquires a 60% interest (12,000 shares) in Train Company for
$156,000. Train stockholders’ equity on the purchase date is as follows:

Common stock ($5par)………
………..
…….
$100,000

Paid-incapital in excess of par
…………………
50,000

Retained earnings
………………………….
80,000

Total stockholders’ equity……
……….. …….
$230,000

At the purchase date, Train’s book
values for assets and liabilities closely approximate fair values. Any excess
of cost over book value is attributed to goodwill.
On January 1, 2013, Train Company sells
5,000 shares of common stock in a public offering at $20 per share. Mitta
Corporation purchases 4,000 shares.
During 2013, Mitta sells $30,000 of
goods to Train at a gross pro?t of 25%. There are
$6,000 of Mitta goods in Train’s
beginning inventory and $8,000 of Mitta goods in Train’s ending inventory.
Merchandise sales by Train to Mitta are
$20,000 during 2013 at a gross pro?t of 30%.
There
are $6,000 of Train goods in Mitta’s beginning inventory and $2,000 of Train
goods in Mitta’s ending inventory.

Intercompany gross pro?t rates have
been constant for many years. There are no intercompany payables/receivables.
Mitta’s investment in Train Company
balance is determined as follows:

Original cost
………………………………………………..
…. $156,000

60%of Train 2012 income ($40,000
60%)…. ……….. ……….. 24,000

Subtotal …….. ……….. …
…….. … …….. ……….. ………. $180,000

Less60%ofTrain dividends declared
in2012(60% $8,000) …….. (4,800)

Subtotal …….. ……….. …
…….. … …….. ……….. ………. $175,200

Cost to acquire additional shares (new
issue) ….. ……….. ………..
…….. 80,000

64%ofTrain 2013income ($50,000
Â64%)…. ……….. ………..
……..
32,000

Subtotal …….. ……….. …
…….. … …….. ……….. ………. $287,200

Less64%ofTrain dividends declared
in2013(64% Â$10,000)……. ……….. . (6,400)

Investment balance, December31,2013………..
……….. ………..
…
$280,800

The trial balances of the two companies
as of December 31, 2013, are as follows:

Mitta
Train

Corporation
Company

Cash ………… ………..
……….. ………..
…….
106,200
63,500

Accounts Receivable ………..
……….. ……….. …….
113,600
60,000

Inventory ……… ………..
……….. ……….. …….
350,000
80,000

InvestmentinTrain Company ……
……….. ……….. … .280,800

Property,Plant, andEquipment…..
……….. ……….. …
1,800,000 360,000

Accumulated Depreciation ……..
……….. ……….. … .
(600,000)
(89,500)

Accounts Payable ……. ………..
……….. ………..
..
(180,000)
(64,000)

Other CurrentLiabilities………
……….. ……….. ……
(26,000) (8,000)

BondsPayable………………………………………
(500,000)

Mitta
Train

Corporation Company

Company

CommonStock($10 par) ……….
……….. ……….. …. (1,000,000)

CommonStock($5par) ….. ………..
……….. ……….
(125,000)

Paid-In Capital inExcess ofPar ……
……….. ……….. ..(125,000)

Retained Earnings,January
1,2013……… ……….. ……
(212,600)
(112,000)

Sales ……. ……….. ………..
………..
………… (1,950,000)
(600,000)

Subsidiary Income………. ………..
………..
……….
(32,000)

Costof GoodsSold ……… ………..
………..
……….
1,170,000
420,000

Other Expenses . ……….. ………..
………..
……….
630,000
130,000

Dividends Declared…. ………..
……….. ………..
….
50,000
10,000

Totals ….. ……….. ………..
……….. …………
0
0

Prepare the worksheet necessary to
produce the consolidated ?nancial statements of Mitta Corporation and its
subsidiary as of December 31, 2013. Include the determination and distribution
of excess and income distribution schedule.