Problem 7-7 (LO 4) Worksheet, two subsidiaries, preferred stock, intercompany merchandise and ?xed assets, bonds. The following information pertains to Titan Corporation and its two subsidiaries, Boat Corporation and Engine Corporation:
a. The three corporations are all in the same industry and their operations are homogeneous. Titan Corporation exercises control over the boards of directors of Boat Corporation and Engine Corporation and has installed new principal of?cers in both.
b. Boat Corporation has a retained earnings balance of $92,000 at January 1, 20X7, and has income of $15,000 for the ?rst three months of 20X7 and $20,000 for the ?rst six months of 20X8.
c. Titan Corporation acquires 250 shares of fully participating Engine preferred stock for
$7,000 and 14,000 shares of Engine common stock for $196,000 on January 2, 20X8. Engine Corporation has a net income of $20,000 in 20X8 and does not declare any divi- dends.
d. Engine Corporation's inventory includes $22,400 of merchandise acquired from Boat Corporation subsequent to July 20X8, for which no payment has been made. Boat Corpora- tion marks up the merchandise 40% on cost.
e. Titan Corporation acquires in the open market twenty-?ve $1,000, 6% bonds of Boat Cor- poration for $21,400 on January 1, 20X5. Boat Corporation bonds mature December 31, 20Y0. Interest is paid each June 30 and December 31. Straight-line amortization is allowed on the basis of materiality.
f. The 20X8 year-end balance in the investment in Boat Corporation stock account is com- posed of the items shown in the following schedule:
|
Date
|
Description
|
Amount
|
|
April 1, 20X7
|
Cost of 5,000 shares of Boat Corporation stock . . . . . .
|
$ 71,400
|
|
December 31, 20X7
|
20% of the dividends declared in December
|
|
|
20X7 by Boat Corporation . . . . . . . . . . . . . . . . . . . .
|
(9,000)
|
|
December 31, 20X7
|
20% x 20X7 annual net income of $60,000 for Boat Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
12,000
|
|
July 1, 20X8
|
Cost of 15,000 shares of Boat Corporation . . . . . . . . .
|
226,200
|
|
December 31, 20X8
|
80% of the dividends declared in December
|
|
|
20X8 by Boat Corporation . . . . . . . . . . . . . . . . . . . .
|
(24,000)
|
|
December 31, 20X8
|
80% of the 20X8 June-December net income of
|
|
|
Boat Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
16,000
|
|
December 31, 20X8
|
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
$292,600
|
g. Titan Corporation does not properly adjust the prior 20% investment when it acquires the 60% interest on July 1, 2008.
h. The December 31, 20X8, trial balances for the three corporations appear as follows:
|
Titan Corporation
|
Boat Corporation
|
Engine Corporation
|
|
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
100,000
|
87,000
|
95,000
|
|
Accounts Receivable . . . . . . . . . . . . . . . . . . . .
|
158,200
|
210,000
|
105,000
|
|
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
290,000
|
90,000
|
115,000
|
|
Advance to Boat Corporation . . . . . . . . . . . . .
|
17,000
|
|
|
|
Dividends Receivable . . . . . . . . . . . . . . . . . . .
|
24,000
|
|
|
|
Property, Plant, and Equipment . . . . . . . . . . . .
|
777,600
|
325,000
|
470,000
|
|
Accumulated Depreciation . . . . . . . . . . . . . . .
|
(180,000)
|
(55,000)
|
(160,000)
|
|
Investment in Boat Corporation:
6% Bonds. . . . . . . . . . . . . . . . . . . . . . . . . . .
|
23,800
|
|
|
|
Common Stock. . . . . . . . . . . . . . . . . . . . . . .
|
292,600*
|
|
|
Investment in Engine Corporation:
|
Titan Corporation
|
|
Boat Corporation
|
|
Engine Corporation
|
|
|
Common Stock. . . . . . . . . . . . . . . . . . . . . . .
|
207,200
|
|
|
|
|
|
|
Notes Payable . . . . . . . . . . . . . . . . . . . . . . . . .
|
(45,000)
|
|
(14,000)
|
|
(44,000)
|
|
|
Accounts Payable . . . . . . . . . . . . . . . . . . . . . .
|
(170,000)
|
|
(96,000)
|
|
(86,000)
|
|
|
Bonds Payable. . . . . . . . . . . . . . . . . . . . . . . . .
|
(285,000)
|
|
(150,000)
|
|
(125,000)
|
|
|
Discount on Bonds Payable . . . . . . . . . . . . . . .
|
8,000
|
|
|
|
|
|
|
Dividends Payable. . . . . . . . . . . . . . . . . . . . . .
|
(22,000)
|
|
(30,000)
|
|
|
|
|
Preferred Stock ($20 par) . . . . . . . . . . . . . . . .
|
(400,000)
|
|
|
|
(50,000)
|
|
|
Common Stock ($10 par) . . . . . . . . . . . . . . . .
|
(600,000)
|
|
(250,000)
|
|
(200,000)
|
|
|
Retained Earnings, January 1, 20X8. . . . . . . .
|
(154,600)
|
|
(107,000)
|
|
(100,000)
|
|
|
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
(1,050,000)
|
|
(500,000)
|
|
(650,000)
|
|
|
Other Revenue. . . . . . . . . . . . . . . . . . . . . . . . .
|
(2,100)
|
|
|
|
|
|
|
Subsidiary Income:
Common Stock (Boat) . . . . . . . . . . . . . . . . .
|
(16,000)
|
|
|
|
|
|
|
Preferred Stock (Engine) . . . . . . . . . . . . . . .
|
(400)
|
|
|
|
|
|
|
Common Stock (Engine) . . . . . . . . . . . . . . .
|
(11,200)
|
|
|
|
|
|
|
Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . .
|
650,000
|
|
300,000
|
|
400,000
|
|
|
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . .
|
358,500
|
|
160,000
|
|
230,000
|
|
|
Dividends Declared . . . . . . . . . . . . . . . . . . . . .
|
22,000
|
|
30,000
|
|
|
|
|
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
0
|
|
0
|
|
0
|
|
Required
1. Prepare any adjustment needed to the investment account as a result of the July, 1, 20X8, acquisition.
2. Prepare the worksheet necessary to produce the consolidated ?nancial statements of Titan Corporation and its subsidiaries as of December 31, 20X8. Correct the trial balances prior to consolidating. Consolidated retained earnings should be allocated to Titan Corporation, and the NCIs should be shown separately in the Consolidated Balance Sheet column. All supporting computations and schedules should be in good form.