Refer to the preceding facts for Pontiacs acquisition of 80% of Starks common stock and the bond

Refer to the preceding facts for Pontiac’s acquisition of 80% of Stark’s common stock and the bond transactions. Pontiac uses the simple equity method to account for its investment in Stark. On January 1, 2016, Stark held merchandise acquired from Pontiac for $20,000. During 2016, Pontiac sold $60,000 worth of merchandise to Stark. Stark held $25,000 of this merchandise at December 31, 2016. Stark owed Pontiac $12,000 on December 31 as a result of these intercompany sales. Pontiac has a gross profit rate of 30%. Pontiac and Stark had the following trial balances on December 31, 2016:

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, 2016. Include the determination and distribution of excess and income distribution schedules.
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:

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:

Transcribed Image Text:

Cash nventory Investment in Stark Bonds Accumulated Depreciation Accumulated Depreciation. . ....1330,000) Discount on Bonds Payable Retained Earnings, January 1, 2016.. . . Depreciafion Expense-Buildings. Depreciation Expense- Equipment.. Other Expenses 2 Subsidiary lncome Dividends Declared. Stark Com January 1, 2014 Assets Liabilities and Equity $. 40,000 Accounts payable 42,297 100,000 (2,297) 10,000 90,000 115,000 Accounts receivable Inventory - 20,000 Bonds payable 35,000 Discount on bonds payable 250,000 Common stock ($10 par) (50,000) Paid-in capital in excess of par 120,000 Retained earnings 60,000) Buildings Total assets.. Total liabilities and equity $355,000 Stark Pontiac Period Cash nterest Balance Period Cash nteres Balance 96,719 1/2011 1/2011 1/2012 $8,000 $8,328 97,0471/2012 1/2013 8,000 832 97,375 1/2013 1/2014 8,000 8,328 97,703 1/2014 1/2015 8,000 8,328 98,03 1/2015 1/2016 8,000 8,328 98,359 /206 $8,000 $,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 00,000/2021 8,000 7,205 100,000 Adjusted for rounding $104,770