week 5

Refer to the preceding facts for Pontiac’s acquisition of 80% of Starks common stock and the bond transactions. Pontiac uses the simple equity method to account for its investment in Stark. On January 1, 2015, Stack held merchandise acquired from Pontiac for $15,000. During 2015, Pontiac sold $50,000 worth of merchandise to Stark. Stark held $20,000 of this merchandise at December 31, 2015. Stark owed Pontiac $10,000 on December 31 as a result of these intercompany sales. Pontiac has a gross profit rate of 30%. Pontiac and Stark had the trial balances on December 31, 2015, shown on next page.

Pontiac Company

Stark Company

Cash

17,870

32,031

Accounts Receivable

90,000

60,000

Inventory

100,000

30,000

Land

150,000

45,000

Investment in Stark

435,738

Investment in Stark Bonds

103,975

Buildings

500,000

250,000

Accumulated Depreciation

(300,000)

(70,000)

Equipment

200,000

120,000

Accumulated Depreciation

(100,000)

(84,000)

Accounts Payable

(55,000)

(25,000)

Bonds Payable

(100,000)

Discount on Bonds Payable

1,641

Common Stock

(100,000)

(10,000)

Paid-In Capital in Excess of Par

(600,000)

(90,000)

Retained Earnings, January 1, 2015

(400,000)

(145,000)

Sales

(600,000)

(220,000)

Cost of Goods Sold

410,000

120,000

Depreciation Expense—Buildings

30,000

10,000

Depreciation Expense—Equipment

15,000

12,000

Other Expenses

109,360

45,000

Interest Revenue

(7,205)

Interest Expense

8,328

Subsidiary Income

(19,738)

Dividends Declared

20,000

10,000

Totals

0

0

Required

Prepare the worksheet necessary to produce the consolidated financial statements for Pontiac Company and its subsidiary Stark Company for the year ended December 31, 2015. Include the determination and distribution of excess and income distribution schedules.