Mary Company purchases its interest in John Company on January 1, 2016, for $204,000. John Company purchases its interest in Joan Company on January 1, 2017, for $75,000. Mary Company purchases its interest in Joan Company on January 1, 2018, for $72,000. All investments are accounted for under the equity method. Control over Joan Company does not occur until the January 1, 2018, acquisition. Thus, a D&D schedule will be prepared for the investment in Joan as of January 1, 2018.

The following stockholders’ equities are available:

	John Company December 31,	Joan Company December 31,
	2015	2016	2017
Common stock ($10 par)	$150,000
Common stock ($10 par)		$100,000	$100,000
Paid-in capital in excess of par	75,000
Retained earnings	75,000	50,000	80,000
Total equity	$300,000	$150,000	$180,000

On January 2, 2018, Joan Company sells a machine to Mary Company for $20,000. The machine has a book value of $10,000, with an estimated life of five years and is being depreciated on a straight-line basis.

John Company sells $20,000 of merchandise to Joan Company during 2018 to realize a gross profit of 30%. Of this merchandise, $5,000 remains in Joan Company’s December 31, 2018, inventory. Joan owes John $3,000 on December 31, 2018, for merchandise delivered during 2018.

Trial balances of the three companies prepared from general ledger account balances on December 31, 2018, are as follows:

	Mary Company	John Company	Joan Company
Cash	62,500	60,000	30,000
Accounts Receivable	200,000	55,000	30,000
Inventory	360,000	80,000	50,000
Investment in John Company	270,000
Investment in Joan Company	86,000	107,500
Property, Plant, and Equipment	2,250,000	850,000	350,000
Accumulated Depreciation	(938,000)	(377,500)	(121,800)
Intangibles	15,000
Accounts Payable	(215,500)	(61,000)	(22,000)
Accrued Expenses	(12,000)	(4,000)	(1,200)
Bonds Payable	(500,000)	(300,000)	(100,000)
Common Stock ($5 par)	(500,000)
Common Stock ($10 par)		(150,000)
Common Stock ($10 par)			(100,000)
Paid-In Capital in Excess of Par	(700,000)	(75,000)
Retained Earnings, January 1, 2018	(290,000)	(130,000)	(80,000)
Sales	(1,800,000)	(500,000)	(300,000)
Gain on Sale of Equipment			(10,000)
Subsidiary Income	(58,000)	(20,000)
Cost of Goods Sold	1,170,000	350,000	180,000
Other Expenses	525,000	100,000	90,000
Dividends Declared	75,000	15,000	5,000
Totals	0	0	0

Required

Prepare the worksheet necessary to produce the consolidated financial statements of Mary Company and its subsidiaries as of December 31, 2018. Include the determination and distribution of excess and income distribution schedules. Any excess of cost is assumed to be attributable to goodwill.

Answer rating: 100% (QA)

Computation of Net Book Value of Machine Particulars Amount Book Value at the ... View the full answer