Question: Steven Truck Company has been an 80%-
Steven Truck Company has been an 80%-owned subsidiary of Paulz Heavy Equipment since January 1, 2013, when Paulz acquired 128,000 shares of Steven common stock for $832,000, an amount equal to the book value of Steven’s net assets at that date. Steven’s net income and dividends paid since acquisition are as follows:
On January 1, 2015, Paulz leased a truck from Steven. The 3-year financing-type lease provides for payments of $10,000 each January 1 (including present value of unguaranteed residual value of $4,763). On January 1, 2015, the present value of the truck at Steven’s 8% implicit rate, including the unguaranteed residual value of $6,000 at the end of the third year, was $32,596. Paulz has used the 8% implicit rate to record the lease. The truck is being depreciated over three years on a straight-line basis.
On January 1, 2016, Steven signed a 4-year financing-type lease with Paulz for the rental of specialized production machinery with an 8-year life. There is a $7,000 purchase option at the end of the fourth year. The lease agreement requires lease payments of $30,000 each January 1 plus $1,500 for maintenance of the equipment. It also calls for contingent payments equal to 10% of Steven’s cost savings through the use of this equipment, as reflected in any increase in net income (excluding gains or losses on sale of assets) above the previous growth rate of Steven’s net income. The present value of the equipment on January 1, 2016, at Paulz’s 10% implicit rate was $109,388.
On October 1, 2016, Steven sold Paulz a warehouse having a 20-year remaining life, a book value of $135,000, and an estimated salvage value of $20,000. Paulz paid $195,000 for the building, which is being depreciated on a straight-line basis.
The trial balances were prepared by the separate companies on December 31, 2016, as follows:
Required
Prepare the worksheet necessary to produce the consolidated financial statements of Paulz Heavy Equipment and its subsidiary for the year ended December 31, 2016. Include income distribution schedules.
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Year Net Income Dividends $ 70,000 75,600 2013 $25,000 2014 25,000 30,000 2015 81,650 Totals $227,250 $80,000 Paulz Heavy Steven Truck Equipment Company Cash 90,485 228,000 123,307 120,000 140,000 10,000 6,000 (444) 109,388 Accounts Receivable (net) . Inventory . Minimum Lease Payments Receivable Unguaranteed Residual Value.. Unearned Interest Income . 200,000 97,000 (9,673) 27,833 (18,556) 2,075,000 Assets Under Capital Lease Accumulated Depreciation-Assets Under Capital Lease. Property, Plant, and Equipment... Accumulated Depreciation-Property, Plant, and Equipment. Investment in Steven Truck Company. Accounts Payable . Interest Payable . Obligations Under Capital Lease Common Stock ($5 par) Retained Earnings, January 1, 2016. Sales . Gain on Sale of Assets. (13,674) 1,145,000 (713,000) 1,045,800 (100,000) (740) (9,260) (1,800,000) (864,834) (160,000) (85,000) (7,939) (79,388) (800,000) (387,250) (1,400,000) (60,000) (1,152) (3,200,000) Interest Income.. (7,939) Paulz Heavy Equipment Steven Truck Company Rent Income.. Cost of Goods Sold (2, 182) 1,882,000 740 Interest Expense... Depreciation Expense . Other Expenses . Subsidiary Income. Dividends Declared. 770,000 7,939 45,000 483,213 135,000 924,326 (124,000) 144,000 35,000 Totals.
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