Question: The Primary Company and the VIE Company
The Primary Company and the VIE Company had the balance sheet shown in Problem SA2-1 above on the date control was achieved. The Primary Company guaranteed the 5% bond payable issued by the VIE Company. The Primary Company also loaned the VIE Company $300,000 on a subordinated note at 10% annual interest.
The fair value of the VIE Company’s assets (without deduction for debt) is $870,000. Equipment, with a 5 year life is $50,000 greater than book value.
The VIE company will pay 10% annual interest to the Primary Company on the intercompany loan. The VIE will also pay a fee of 5% on its sales revenue to the Primary Company.
The Primary Company and the VIE Company had the following trail balances on December 31, 2016:
1. Prepare a determination and distribution of excess schedule for the schedule. (If problem SA12-1 was completed, the same schedule applies)
2. Prepare a consolidate worksheet for the Primary and VIE Companies as of December 31, 2016. Include the income distribution schedules.
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Trial Balances, Dec. 31, 2016 Primary Company VIE Company Cash 305,000 110,000 Accounts receivable 425,000 Inventory Loan receivable from VIE Co. 425,000 300,000 50,000 Land.. (continued) Trial Balances, Dec. 31, 2016 Primary Company VIE Company Building.. Accumulated depreciation Equipment .. Accumulated depreciation Accounts payable Loan from Primary Company. 6% Bond Payable Common stock, $1 par-Primary Co. Paid in capital in excess of par-Primary Co.. Retained earnings-Primary Co. Common stock, $1 par-VIE Co. Paid in capital in excess of par-VIE Co. Retained earnings-VIE Co. Sales 500,000 (175,000) 400,000 (100,000) 360,000 (90,000) 30,000 300,000 400,000 100,000 900,000 570,000 10,000 50,000 20,000 220,000 5,000 20,000 800,000 30,000 Interest revenue Processing revenue Cost of goods sold. depreciation expense Selling expenses Administrative expense. Interest expense.. 500,000 75,000 90,000 60,000 133,000 30,000 20,000 3,000 34,000 Totals.. 2,430,000 2,430,000 1,025,000 1,025,000
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