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Parson Industries purchased 80% of the common stock of Succo Company on January 1,2001, for




Question;Parson Industries purchased 80% of the common stock of Succo Company on January 1,2001, for $300,000 when Succo Company's capital consisted of common stock of $200,000 preferred stock of $100,000, other contributed capital of $50,000, and retained earnings of $62,000.The $100 par value preferred is 15%, cumulative and nonparticipating, and has a call price of $104 per share. Dividends on the preferred stock were not paid in 2000.Trial balances for the parent and subsidiary for the December 31, 2008, year-end are presented below.Income statement Parson Industries Succo CompanySales $404,000 $300,000Dividend Income 4000 Cost of Goods Sold (200,000) (160,000)Operating Expenses (36,400) (50,000)Income Taxes (40,200) (27,000)Net Income $131,400 $63,000Retained Earnings Parson Industries Succo Company1/1 Retained Earnings $157,400 $107,000Net Income $131,400 $63,000Less: Dividends Declared (65,000) (50,000)12/31 Retained Earnings $223,800 $120,000Balance Sheet Cash and Receivables $396,800 $205,000Inventories 200,000 170,000Land 300,000 120,000Buildings and Equipment 697,000 245,000Accumulated Depreciation (100,000) (70,000)Investment in Succo Company 300,000 Totals: $1,793,800 $670,000Current Liabilities $370,000 $100,000Bonds Payable: 400,000 100,000Preferred Stock: 100,000Common Stock, $10 par value: 600,000 200,000Other Contributed Capital: 200,000 50,000Retained Earnings 223,800 120,000Totals: $1,793,800 $670,000Additional Information:1. At the beginning of 2008, dividends on the preferred stock were in arrears for 2006 and 2007.2. Succo Company owed Parson Industries $10,000 for purchases of inventory on account.3. At the date of acquisition, the portion of the difference between the implied value and book value of Succo that was attributed to tangible assets of Succo Company was allocated as follows:Equipment (net): $10,000Inventories: $5,000Land: $5,0004. The building and equipment account of Parson Industries includes $50,000 of equipment acquired from Succo Company on July 1, 2007. When sold to Parson Industries, the asset was carried on the books of Succo Company at a cost of $100,000 and accumulated depreciation of $20,000. The asset is being depreciated by Parson industries over a remaining life of five years. Parson industries uses the straight-line method of depreciation.5. The 2007 and 2008 ending inventories of Succo Company included goods purchased from Parson Industries for $15,000 and $25,000, respectively. Parson Industries sells merchandise to Succo Company at 20% above cost. During 2008, such sales amounted to $100,000.6. The affiliates file consolidated tax returns. Ignore deferred income taxes in the assignment of the difference between implied and book value.Required:A. Compute the difference between implied value and book value of Succo Company at the date of acquisition and allocate the difference to undervalued assets of Succo Company. (10 Points)B. Prepare a consolidated statements workpaper for the year ended December 31, 2008. (30 Points)C. Prepare Journal Entries (40 Points)


Paper#41731 | Written in 18-Jul-2015

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