Urgent accounting questions

ACC 405 Final Project One Scenario Posey Company

Overview You are a financial accountant for Posey Company tasked with preparing consolidation documentation at year end. You have the following information: December 31, 20X5 Posey Company acquired 90% of Stargell Corporation’s outstanding common stock for $1,116,900. On that date:

 The fair value of the noncontrolling interest was $124,100;

 Stargell reported common stock outstanding of $487,000, premium on common stock of $267,000, and retained earnings of $407,000; the book values and fair values of Stargell’s assets and liabilities were equal except for land, which was worth $30,000 more than its book value.

On April 1, 20X6

 Posey issued at par $200,000 of 10% bonds directly to Stargell; interest on the bonds is payable March 31 and September 30.

On January 2, 20X7

 Posey purchased all of Stargell’s outstanding 10-year, 12% bonds from an unrelated institutional investor at 98. The bonds originally had been issued on January 2, 20X1, for 101. Interest on the bonds is payable December 31 and June 30.

Since the date it was acquired by Posey

 Stargell has sold inventory to Posey on a regular basis. The amount of such intercompany sales totaled $67,000 in 20X6 and $83,000 in 20X7, including a 30% gross profit.

 All inventory transferred in 20X6 had been resold by December 31, 20X6, except inventory for which Posey had paid $18,000 and did not resell until January 20X7.

 All inventory transferred in 20X7 had been resold at December 31, 20X7, except merchandise for which Posey had paid $16,667.

As of December 31, 20X7

 Stargell had declared but not yet paid its fourth-quarter dividend of $12,750.

 Both Posey and Stargell use straight-line depreciation and amortization, including the amortization of bond discount and premium.

 On December 31, 20X7, Posey’s management reviewed the amount attributed to goodwill as a result of its purchase of Stargell common stock and concluded that an impairment loss in the amount of $25,000 had occurred during 20X7 and should be shared proportionately between the controlling and noncontrolling interests.

 Posey uses the fully adjusted equity method to account for its investment in Stargell.

On December 31, 20X7, trial balances for Posey and Stargell appeared as follows: Posey Company Stargell Corporation

Item Debit Credit Debit Credit

Cash $ 49,500 $ 39,000

Current Receivables 121,500 90,100

Inventory 317,000 364,900

Investment in Stargell Stock 1,243,800

Investment in Stargell Bonds 985,000

Investment in Posey Bonds 200,000

Land 1,241,000 518,000

Buildings and Equipment 2,940,000 1,915,000

Cost of Goods Sold 1,829,000 426,000

Depreciation & Amortization 184,000 65,000

Other Expenses 632,000 206,000

Dividends Declared 61,000 51,000

Accumulated Depreciation $ 1,050,000 $ 597,000

Current Payables 699,190 213,000

Bonds Payable 200,000 1,000,000

Premium on Bonds Payable 3,000

Common Stock 910,000 487,000

Premium on Common Stock 610,000 267,000

Retained Earnings, January 1 2,848,950 457,000

Sales 3,010,000 801,000

Other Income 143,000 50,000

Income from Stargell Corp. 132,660

Total $ 9,603,800 $ 9,603,800 $ 3,875,000 $ 3,875,000