Computations (constructive retirement of subsidiary bonds)


Question Description:

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Computations (constructive retirement of subsidiary bonds) Selected amounts from the separate unconsolidated financial statements of Poe Corporation and its 90 percent-owned subsidiary, Saw Company, at December 31, 2011, are as follows. Poe Saw Selected Income Statement Amounts Sales $710,000 $530,000 Cost of goods sold 490,000 370,000 Gain on sale of equipment — 21,000 Earnings from investment in subsidiary 63,000 — Interest expense — 16,000 Depreciation 25,000 20,000 Selected Balance Sheet Amounts Cash $ 50,000 $ 15,000 Inventories 229,000 150,000 Equipment 440,000 360,000 Accumulated depreciation (200,000) (120,000) Investment in Saw 189,000 — Investment in bonds 91,000 — Bonds payable — (200,000) Common stock (100,000) (10,000) Additional paid-in capital (250,000) (40,000) Retained earnings (402,000) (140,000) Selected Statement of Retained Earnings Amounts Beginning balance December 31, 2010 $272,000 $100,000 Net income 212,000 70,000 Dividends paid 80,000 30,000 ADDITIONAL INFORMATION 1. On January 2, 2011, Poe purchased 90 percent of Saw’s 100,000 outstanding common stock for cash of $153,000. On that date, Saw’s stockholders’ equity equaled $150,000 and the fair values of Saw’s assets and liabilities equaled their carrying amounts. Poe accounted for the combination as an acquisition. The difference between fair value and book value was due to goodwill. 2. On September 4, 2011, Saw paid cash dividends of $30,000. 3. On December 31, 2011, Poe recorded its equity in Saw’s earnings. 4. On January 3, 2011, Saw sold equipment with an original cost of $30,000 and a carrying value of $15,000 to Poe for $36,000. The equipment had a remaining life of three years and was depreciated using the straight-line method by both companies. 5. During 2011, Saw sold merchandise to Poe for $60,000, which included a profit of $20,000. At December 31, 2011, half of this merchandise remained in Poe’s inventory. 6. On December 31, 2011, Poe paid $91,000 to purchase half of the outstanding bonds issued by Saw. The bonds mature on December 31, 2017, and were originally issued at par. These bonds pay interest annually on December 31 of each year, and the interest was paid to the prior investor immediately before Poe’s purchase of the bonds. REQUIRED: Determine the amounts at which the following items will appear in the consolidated financial statements of Poe Corporation and Subsidiary for the year ended December 31, 2011. 1. Cash 2. Equipment less accumulated depreciation 3. Investment in Saw 4. Bonds payable (net of unamortized discount) 5. Common stock 6. Beginning retained earnings 7. Dividends paid 8. Gain on retirement of bonds 9. Cost of goods sold 10. Interest expense 11. Depreciation expense

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