Question

Patter Inc. acquired an 80% interest in Swing Company for $480,000 on January 1, 2011, when Swing had the following stockholders’ equity:
Common stock ($10par) ............... $100,000
Additional paid-in capital in excess of par ....... 300,000
Retained earnings ................. 100,000
Total equity ................... $500,000
Any excess was attributed to goodwill.
The trial balances of Patter, Inc., and Swing Company were prepared on December 31, 2015, as follows:
The following intercompany leases have been written by Swing since the acquisition:
1. On January 1, 2013, Swing purchased for $140,000 land and a building, which it leased to Patter, Inc., under a 5-year operating lease. Payments of $11,000 per year are required at the beginning of each year. The $120,000 building cost is being depreciated over 20 years on a straight-line basis.
2. On January 1, 2014, Swing purchased a machine for $14,000 and leased it to Patter, Inc. The 4-year lease qualifies as a capital lease. The rentals are $5,000 per year, payable at the beginning of each year. There is a bargain purchase option whereby Patter will purchase the machine at the end of four years for $2,000.
The fair value of the machine was $17,560 at the start of the lease term. The lease payments, including the purchase option, yield an implicit rate of 15% to the lessor. Patter is depreciating the machine over seven years on a straight-line basis with no salvage value.
3. January 1, 2015, Swing purchased a truck for $23,116 and leased it to Patter, Inc., under a 3-year capital lease. Payments of $8,000 per year are required at the beginning of each year.
There is a bargain purchase agreement for $5,000. Patter, Inc., is depreciating the truck over four years, straight-line, with no salvage value. The lease has a lessor implicit rate of 20%.
4. Patter, Inc., has accrued interest in 2015 on its capital lease obligations. Swing has recognized earned interest for the year on its capital leases.
Required
Prepare the worksheet necessary to produce the consolidated financial statements of Patter, Inc., and its subsidiary for the year ended December 31, 2015. Include the determination and distribution of excess and income distribution schedules.


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  • CreatedApril 13, 2015
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