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 inexcessofpar .....................
50,000
Retained earnings ...............................
80,000
Totalstockholders’ 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 offer-
ing at $20 per share. Mitta Corporation purchases 4,000 shares.
During 2013, Mitta sells $30,000 of goods to Train at a gross profit of 25%. There are
$6,000 of Mitta goods in Train’s beginning inventory and $8,000 of Mitta goods in Train’s end-
ing inventory.
Merchandise sales by Train to Mitta are $20,000 during 2013 at a gross profit 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 profit rates have been constant for many years. There are no intercom-
pany payables/receivables.
Mitta’s investment in Train Company balance is determined as follows:
Originalcost ........................................................ ....
$156,000
60%ofTrain 2012income ($40,000 60%).... ........... ........... 24,000
Subtotal ........ ........... ... ........ ... ........ ........... ..........
$180,000
Less60%ofTrain dividends declared in2012(60% $8,000) ........ (4,800)
Subtotal ........ ........... ... ........ ... ........ ........... ..........
$175,200
Costtoacquireadditionalshares (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)
Investmentbalance, 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)
.
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Problem 8-4 (LO 2) Worksheet, subsidiary stock sale with parent pu.docx
1. 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 inexcessofpar .....................
50,000
Retained earnings ...............................
80,000
Totalstockholders’ equity...... ........... .......
$230,000
2. 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 offer-
ing at $20 per share. Mitta Corporation purchases 4,000 shares.
During 2013, Mitta sells $30,000 of goods to Train at a gross
profit of 25%. There are
$6,000 of Mitta goods in Train’s beginning inventory and
$8,000 of Mitta goods in Train’s end-
ing inventory.
Merchandise sales by Train to Mitta are $20,000 during 2013 at
a gross profit 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 profit rates have been constant for many
years. There are no intercom-
pany payables/receivables.
Mitta’s investment in Train Company balance is determined as
follows:
4. $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
7. (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
financial statements of Mitta
Corporation and its subsidiary as of December 31, 2013. Include
