Problem 510 LO 4 100 cost operating lease Sym Corporation a

Problem 5-10 (LO 4) 100%, cost, operating lease. Sym Corporation, a wholly owned subsidiary of Paratec Corporation, leased equipment from its parent company on August 1, 2016. The terms of the agreement clearly do not require the lease to be accounted for as a capi- tal lease. Both entities are accounting for the lease as an operating lease. The lease payment is $12,000 per year, paid in advance each August 1. Paratec purchased its investment in Sym on December 31, 2011, when Sym had a retained earnings balance of $150,000. Paratec is accounting for its investment in Sym under the cost method. Included in the original purchase price was a $50,000 premium attributable to Sym’s history of exceptional earnings. The December 31, 2018, trial balances of Paratec and its subsidiary are presented below.

1. Consolidated worksheet

2. Elimination and adjustment worksheet

Problem 5-10 (LO 4) 100%, cost, operating lease. Sym Corporation, a wholly owned subsidiary of Paratec Corporation, August 1, 2016. The terms of the agreement clearly do not require the lease to be accounted for as a capi- The lease payment is leased equ ipment from its parent company on as an operating lease. tal lease. Both entities are accounting for the lease $12,000 per year, paid in advance each August 1 Paratec its investment in Sym on December 31,2011, when Sym had a retained of $150,000. Paratec is accounting for its investment in Sym under the cost carnings method. Included in the original purchase price was a $50,000 premium attributable to Sym\'s history of exceptional earnings. The December 31,2018, trial balances of Paratec and its subsidiary are presented below. Sym Cash Accounts Receivable (naf] Inventory 40,000 738,350 42,000 75,000 7,000 65,000 90,000 500,000 250,000 250,000 Investment in Bonds Land 85,000 Accumulated Depreciation-Plant and Equipment. Equipment Under Operating Lease Accumulated Depreciation- Assets Under Operating Lease Accounts Payable Deferred Rent Revenue Common Stock (no par) (250,0001 20,000 (60,000) . . . . . . . . . . . . . (52,000) (385,000 (7,000) (2,000,000) (200,000 Paratec Sym ..4,720, (500,000) Rent Income 12,000) Rent Expense.. 2,000 ...295,000 Totals Required Prepare the worksheet necessary to produce the consolidated income statement and balance sheet of Paratec Corporation and its subsidiary for the year ended December 31, 2018.

Solution

It is given that the retained earnings are 310000 on january 1,2018 and retained earnings are 150000 at the end of the year. Investment in S corporation is retained earnings at the beginning of the year minus retained earnings at the end of the year. Investment in S corporation = [(retained earnings at the beginning of the year)-(retained earnings at the end of the year)] =310000-150000 = 160000 Hence, the investment in S corporation is 160000 Compute the worksheet for consolidated financial statement of P corporation and subsidiary S company for the year ended december 31,2018 Particulars Trial balance Eliminations and adjustments Consolidated balance sheet Controlling retained earnings Consolidated balance sheet Company P Company S DR CR Cash $       1,90,000.00 $        40,000.00 - $       2,30,000.00 Accounts receivable $       7,38,350.00 $    1,42,000.00 $       8,80,000.00 Inventory $       5,00,000.00 $        75,000.00 $       5,75,000.00 Prepaid rent on equipment $          7,000.00 $      57,000.00 Investment in bonds $       2,50,000.00 $        65,000.00 $       3,15,000.00 Investment in S corporation $       4,00,000.00 $    1,60,000.00 $   5,10,000.00 Land $       2,50,000.00 $        85,000.00 $      50,000.00 $       3,35,000.00 Plant and equipment $     19,50,000.00 $    2,95,000.00 $    1,20,000.00 $     23,65,000.00 Accumulated depreciation- plant and equipment $      -2,50,000.00 $      -60,000.00 $      36,000.00 $       3,35,000.00 Equipment under operating lease $       1,20,000.00 $   1,20,000.00 $     23,65,000.00 Accumulated depreciation- assets under operating lease $         -36,000.00 $        36,000.00 Goodwill $        50,000.00 $      -3,46,000.00 Accounts payable $      -3,85,000.00 $      -52,000.00 $          7,000.00 Deffered rent revenue $            -7,000.00 $           50,000.00 Common stock- S company $   -2,00,000.00 $   1,60,000.00 $      -4,37,000.00 $     12,36,350.00 Retained earnings january 1,2018 $   -3,10,000.00 $   -2,00,000.00 Sales $   -47,20,000.00 $   -5,00,000.00 $   -3,10,000.00 $   -52,20,000.00 $   -20,00,000.00 Rental income $         -12,000.00 Cost of goods sold $     30,68,000.00 $    3,00,000.00 $        12,000.00 $     33,68,000.00 Rent expense $        12,000.00 Other expenses $       7,25,000.00 $    1,01,000.00 $      12,000.00 $       8,26,000.00 Dividends declared $       2,95,000.00 $       2,95,000.00 Total $    8,95,000.00 $   8,95,000.00 Consolidated net income $   -10,26,000.00 $   -10,26,000.00 Consolidated retained earning dec 31,2018 $   -19,67,350.00 $   -19,67,350.00 Eliminations and adjustments = Eliminate the parents investment in the subsidiary and the subsidiary equity accounts = Establish the goodwill = Eliminate the prepaid rent, the deffered rent revenue, and the current year rent expense and income = Reclassify the equipment under operating lease and its related accumulated depreciation plant and equipment account and related accumulated depreciation