week 5
knohe_
5.4_new.docxUse the following information for Problems 5-4 and 5-5:
On January 1, 2014, Pontiac Company acquired an 80% interest in the common stock of Stark Company for $400,000. Stark had the following balance sheet on the date of acquisition:
Stark Company
Balance Sheet
January 1, 2014
Assets
Liabilities and Equity
Accounts receivable
$ 40,000
Accounts payable
$ 42,297
Inventory
20,000
Bonds payable
100,000
Land
35,000
Discount on bonds payable
(2,297)
Buildings
250,000
Common stock ($10 par)
10,000
Accumulated depreciation
(50,000)
Paid-in capital in excess of par
90,000
Equipment
120,000
Retained earnings
115,000
Accumulated depreciation
(60,000)
Total assets
$355,000
Total liabilities and equity
$355,000
Buildings (20-year life) are undervalued by $80,000. Equipment (5-year life) is undervalued by $50,000. Any remaining excess is considered to be goodwill.
Stark issued $100,000 of 8%, 10-year bonds for $96,719 on January 1, 2011. Annual interest is paid on December 31. Pontiac purchased the bonds on January 1, 2015, for $104,770. Both companies use the straight-line method to amortize the premium/discount on the bonds. Pontiac and Stark used the following bond amortization schedules:
Stark
Pontiac
Period
Cash
Interest
Balance
Period
Cash
Interest
Balance
1/2011
$ 96,719
1/2011
1/2012
$8,000
$8,328
97,047
1/2012
1/2013
8,000
8,328
97,375
1/2013
1/2014
8,000
8,328
97,703
1/2014
1/2015
8,000
8,328
98,031
1/2015
$104,770
1/2016
8,000
8,328
98,359
1/2016
$8,000
$7,205
103,975
1/2017
8,000
8,328
98,687
1/2017
8,000
7,205
103,180
1/2018
8,000
8,328
99,015
1/2018
8,000
7,205
102,385
1/2019
8,000
8,328
99,343
1/2019
8,000
7,205
101,590
1/2020
8,000
8,328
99,671
1/2020
8,000
7,205
100,795
1/2021
8,000
8,328
100,000*
1/2021
8,000
7,205
100,000
