Prepare an ECOBV amortization schedule at the date of acquisition What is the amount of gross profit to be deferred in 2021? What consolidation entries are needed at the end of 2021?
Prepare an ECOBV amortization schedule at the date of acquisition What is the amount of gross profit to be deferred in 2021? What consolidation entries are needed at the end of 2021?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Prepare an ECOBV amortization schedule at the date of acquisition
What is the amount of gross profit to be deferred in 2021?
What consolidation entries are needed at the end of 2021?

Transcribed Image Text:Pavin acquires all of Stabler's outstanding shares on January 1, 2018, for $460,000 in cash. Of
this amount, $30,000 was attributed to equipment with a 10-year remaining life and $40,000 was
assigned to trademarks expensed over a 20-year period. Pavin applies the partial equity method
so that income is accrued each period based solely on the earnings reported by the subsidiary.
On January 1, 2021, Pavin reports $300,000 in bonds outstanding with a carrying amount of
$282,000. Stabler purchases half of these bonds on the open market for $145,500.
During 2021, Pavin begins to sell merchandise to Stabler. During that year, inventory costing
$80,000 was transferred at a price of $100,000. All but $10,000 (at sales price) of these goods
were resold to outside parties by year end. Stabler still owes $33,000 for inventory shipped from
Pavin during December.
The following financial figures are for the two companies for the year ending December 31,
2021. Dividends were both declared and paid during the current year.
Pavin
Stabler
$ (740,000)
455,000
125,000
36,000
$ (505,000)
240,000
158,500
Revenues
Cost of goods sold
Expenses
Interest expense-bonds
Interest income-bond investment
Loss on extinguishment of bonds
Equity in Stabler's income
Net income
-0-
-0-
(16,500)
-0-
-0-
(123,000)
$ (247,000)
-0–
$ (123,000)
$ (345,000)
(247,000)
155,000
$ (437,000)
$ (361,000)
(123,000)
61,000
$ (423,000)
Retained earnings, 1/1/21
Net income (above)
Dividends declared
Retained earnings, 12/31/21
$ 217,000
175,000
613,000
-0-
$ 35,000
87,000
Cash and receivables
Inventory
Investment in Stabler
-0-
147,000
541,000
-0-
$ 810,000
Investment in Pavin bonds
Land, buildings, and equipment (net)
Trademarks
245,000
-0-
$ 1,250,000
Total assets
$ (225,000)
(300,000)
12,000
(300,000)
(437,000)
$(1,250,000)
Accounts payable
Bonds payable
$ (167,000)
(100,000)
-0-
Discount on bonds
Common stock
(120,000)
(423,000)
$ (810,000)
Retained earnings (above)
Total liabilities and stockholders' equity
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