On January 1 2017 Black Jack Corporation purchases all of
On January 1, 2017, Black Jack Corporation purchases all of the preferred stock and 60% of the common stock of Zeppo Company for $56,000 and $111,000, respectively. Immediately prior to the purchases, Zeppo Company has the following stockholders’ equity:
8%Cumulative preferred stock ($100 par, two years in arrears) ..... $ 50,000
Common stock ($10 par) ................... 100,000
Paid-in capital in excess of par (common stock) ........... 20,000
Retained earnings ...................... 30,000
Total stockholders’ equity ................... $200,000
The December 31, 2018, trial balances of the two companies are as follows:
Additional information is as follows:
a. Any excess of cost over book value on the investment in common stock is attributed to equipment with an 8-year life.
b. On December 30, 2017, and December 30, 2018, Zeppo Company pays preferred stock dividends of $8 per share.
c. Zeppo Company has a net income of $15,000 in 2017 and $10,000 for 2018.
d. Zeppo Company sells a piece of equipment with a book value of $8,000 to Black Jack Corporation for $13,000 on January 2, 2017. The machine has an estimated future life of five years, and straight-line depreciation is being used.
e. During 2018, Black Jack sells $20,000 of goods to Zeppo for cost plus 40%. Zeppo has $2,800 of such purchases in its beginning inventory and $7,000 of such purchases in its ending inventory. Zeppo owes Black Jack $2,000 for purchases at year-end. During 2018, Zeppo sells $8,000 of goods to Black Jack at cost plus 60%. Of these goods, $1,200 are in Black Jack’s beginning inventory, and $1,600 of such goods are in its ending inventory. Black Jack owes Zeppo $6,000 for purchases at year-end.
f. On January 1, 2019, Black Jack Corporation sells its 60% interest in Zeppo Company common stock for $130,000.
1. Prepare the worksheet necessary to produce the consolidated financial statements of Black Jack Corporation and its subsidiary for the year ended December 31, 2018. Include the determination and distribution of excess and income distribution schedules.
2. Prepare the entries on Black Jack Corporation’s books to reflect the sale of its investment in Zeppo Company common stock on January 1, 2019.
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