On December 28, 20X3, Stern Corporation and Ram Company established S&R Partnership, with cash contributions of $18,000 and $72,000, respectively. The partnership's purpose is to purchase from Stern accounts receivable that have an average collection period of 80 days and hold them to collection. The partnership borrows cash from Midtown Bank and purchases the receivables without recourse but at an amount equal to the expected percent to be collected, less a financing fee of 5 percent of the gross receivables. Stern and Ram hold 20 percent and 80 percent of the ownership of the partnership, respectively, and Stern guarantees both the bank loan made to the partnership and a 20 percent annual return on the investment made by Ram. Stern receives any income in excess of the 20 percent return guaranteed to Ram. The partnership agreement provides Stern total control over the partnership's activities. On December 31, 20X3, Stern sold $8,170,000 of accounts receivable to the partnership. The partnership immediately borrowed $7,540,000 from the bank and paid Stern $7,400,000. Prior to the sale, Stern had established a $411,000 allowance for uncollectibles on the receivables sold to the partnership. The balance sheets of Stern and S&R immediately after the sale of receivables to the partnership contained the following: Cash Accounts Receivable Allowance for Uncollectible Accounts Other Assets Prepaid Finance Charges Investment in S&R Partnership Accounts Payable Deferred Revenue Bank Notes Payable Bonds Payable Common Stock Retained Earnings Capital, Stern Corporation Capital, Ram Company Stern Corporation S&R Partnership $8,098,000 $ 279,500 4,390,000 (213,000) 5,400,000 408,500 18,000 942,000 9,670,000 688,000 6,801,500 8,170,000 (411,000) 408,500 7,540,000 18,000 72,000 Required: Assuming that Stern is S&R's primary beneficiary, prepare a consolidated balance sheet for Stern at January 1, 20X4.
On December 28, 20X3, Stern Corporation and Ram Company established S&R Partnership, with cash contributions of $18,000 and $72,000, respectively. The partnership's purpose is to purchase from Stern accounts receivable that have an average collection period of 80 days and hold them to collection. The partnership borrows cash from Midtown Bank and purchases the receivables without recourse but at an amount equal to the expected percent to be collected, less a financing fee of 5 percent of the gross receivables. Stern and Ram hold 20 percent and 80 percent of the ownership of the partnership, respectively, and Stern guarantees both the bank loan made to the partnership and a 20 percent annual return on the investment made by Ram. Stern receives any income in excess of the 20 percent return guaranteed to Ram. The partnership agreement provides Stern total control over the partnership's activities. On December 31, 20X3, Stern sold $8,170,000 of accounts receivable to the partnership. The partnership immediately borrowed $7,540,000 from the bank and paid Stern $7,400,000. Prior to the sale, Stern had established a $411,000 allowance for uncollectibles on the receivables sold to the partnership. The balance sheets of Stern and S&R immediately after the sale of receivables to the partnership contained the following: Cash Accounts Receivable Allowance for Uncollectible Accounts Other Assets Prepaid Finance Charges Investment in S&R Partnership Accounts Payable Deferred Revenue Bank Notes Payable Bonds Payable Common Stock Retained Earnings Capital, Stern Corporation Capital, Ram Company Stern Corporation S&R Partnership $8,098,000 $ 279,500 4,390,000 (213,000) 5,400,000 408,500 18,000 942,000 9,670,000 688,000 6,801,500 8,170,000 (411,000) 408,500 7,540,000 18,000 72,000 Required: Assuming that Stern is S&R's primary beneficiary, prepare a consolidated balance sheet for Stern at January 1, 20X4.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Concept explainers
Partnership Accounting
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings, admission of a new partner, etc.
Partner Admission and Withdrawal
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings of a partner, etc.
Question
Domestic
Transcribed Image Text:Q4.
On December 28, 20X3, Stern Corporation and Ram Company established S&R Partnership, with cash contributions of $18,000 and
$72,000, respectively. The partnership's purpose is to purchase from Stern accounts receivable that have an average collection period of 80
days and hold them to collection. The partnership borrows cash from Midtown Bank and purchases the receivables without recourse but at
an amount equal to the expected percent to be collected, less a financing fee of 5 percent of the gross receivables. Stern and Ram hold 20
percent and 80 percent of the ownership of the partnership, respectively, and Stern guarantees both the bank loan made to the partnership
and a 20 percent annual return on the investment made by Ram. Stern receives any income in excess of the 20 percent return guaranteed to
Ram. The partnership agreement provides Stern total control over the partnership's activities. On December 31, 20X3, Stern sold $8,170,000
of accounts receivable to the partnership. The partnership immediately borrowed $7,540,000 from the bank and paid Stern $7,400,000. Prior
to the sale, Stern had established a $411,000 allowance for uncollectibles on the receivables sold to the partnership. The balance sheets of
Stern and S&R immediately after the sale of receivables to the partnership contained the following:
Cash
Accounts Receivable
Allowance for Uncollectible Accounts
Other Assets
Prepaid Finance Charges
Investment in S&R Partnership
Accounts Payable
Deferred Revenue
Bank Notes Payable
Bonds Payable
Common Stock
Retained Earnings
Capital, Stern Corporation
Capital, Ram Company
Stern Corporation S&R Partnership
$ 8,098,000
4,390,000
$ 279,500
8,170,000
(411,000)
(213,000)
5,400,000
408,500
18,000
942,000
9,670,000
688.000
6,801,500
408,500
7,540,000
18,000
72,000
Required:
Assuming that Stern is S&R's primary beneficiary, prepare a consolidated balance sheet for Stern at January 1, 20X4.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 3 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education