Question

Refer to the preceding facts for Postman’s acquisition of 80% of Spartan’s common stock and the bond transactions. Postman uses the simple equity method to account for its investment in Spartan. On January 1, 2016, Postman held merchandise acquired from Spartan for $12,000. During 2016, Spartan sold $25,000 worth of merchandise to Postman. Postman held $10,000 of this merchandise at December 31, 2016. Postman owed Spartan $6,000 on December 31 as a result of these intercompany sales. Spartan has a gross profit rate of 25%.
Postman and Spartan had the following trial balances on December 31, 2016:
Required
Prepare the worksheet necessary to produce the consolidated financial statements for Postman Company and its subsidiary Spartan Company for the year ended December 31, 2016. Include the determination and distribution of excess and income distribution schedules.
On January 1, 2014, Postman Company acquired Spartan Company. Postman paid $400,000 for 80% of Spartan’s common stock. On the date of acquisition, Spartan had the following balance sheet:
Buildings, which have a 20-year life, are undervalued by $130,000. Equipment, which has a 5-year life, is undervalued by $50,000. Any remaining excess is considered to be goodwill.
Spartan issued $100,000 of 8%, 10-year bonds for $103,432 on January 1, 2011, when the market rate was 7.5%. Annual interest is paid on December 31. Postman purchased the bonds for $95,514 on January 1, 2015, when the market rate was 9%. Both companies use the effective interest method to amortize the premium/discount on the bonds. Postman and Spartan prepared the following bond amortization schedules:


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  • CreatedApril 13, 2015
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