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Pannier Company is the parent company that owns an...

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Pannier Company is the parent company that owns an 80% interest in Jadestar Company. The interest was acquired at book value,and the simple equity method is used to record the ownership interest. The trial balances of the two companies on December 31, 2016, were as followed: Pannier Co. Jadestar Co. Cash..................................................................................................... 258,000 100,000 Inventory............................................................................................. 150,000 40,000 Other Current Assets......................................................................... 50,000 160,000 Investment in Jadestar....................................................................... 316,000 Plant and Equipment......................................................................... 650,000 500,000 Accumulated Depreciation............................................................... (300,000) (200,000) Current Liabilities.............................................................................. (40,000) (5,000) Long-Term Debt................................................................................. (200,000) Common Stock(par)........................................................................... (300,000) (100,000) Retained Earnings.............................................................................. (746,000) (285,000) Sales..................................................................................................... (150,000) (170,000) Cost of Goods Sold............................................................................. 90,000 130,000 Expenses.............................................................................................. 30,000 10,000 Interest Expense................................................................................. 20,000 Subsidiary Income.............................................................................. (8,000) Totals................................................................................................ 0 0 As the year ended, Pannier was planning to transfer a major piece of equipment to Jadestar. The equipment was just purchased by Pannier and is included in it's inventory account. The equipment cost Pannier $100,000 and would be transfered to Jadestar for $125,000. There are two options as follows: a.) Sell the equipment to Jadestar for $125,000 and finance it with a 5 year, 10% interest installment note. b.) Lease the equipment to Jadestar on a 5-year lease requiring payments of $29,977 in advance. 1. Make the journal entries for both companies if the intercompany sale was consummated on Dec. 31. 2. Prepare a consolidated income statement and balance sheet for the company for 2016. (Note: The effect of the equipment sale is not included in the trial balance) 3. Make the journal entries for both companies if the intercompany lease was executed on Dec. 31. 4. If the lease were used, how would the consolidated statements differ from those in part (2)?

 

Paper#4579 | Written in 18-Jul-2015

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