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Problem 8-4 (LO 2) Worksheet, subsidiary stock sale with parent purchase, intercompany merchandise.

On January 1, 2016, Mitta Corporation acquires a 60% interest (12,000 shares) in Train Company for $156,000. Train stockholders equity on the purchase date is as follows:

Common stock ($5 par)	$100,000
Paid-in capital in excess of par	50,000
Retained earnings	80,000
Total stockholders equity	$230,000

At the purchase date, Trains book values for assets and liabilities closely approximate fair values. Any excess of cost over book value is attributed to goodwill.

On January 1, 2017, Train Company sells 5,000 shares of common stock in a public offering at $20 per share. Mitta Corporation purchases 4,000 shares.

During 2017, Mitta sells $30,000 of goods to Train at a gross profit of 25%. There are $6,000 of Mitta goods in Trains beginning inventory and $8,000 of Mitta goods in Trains ending inventory.

Merchandise sales by Train to Mitta are $20,000 during 2017 at a gross profit of 30%. There are $6,000 of Train goods in Mittas beginning inventory and $2,000 of Train goods in Mittas ending inventory.

Intercompany gross profit rates have been constant for many years. There are no intercompany payables/receivables.

Mittas investment in Train Company balance is determined as follows:

Original cost	$156,000
60% of Train 2016 income ($40,000 60%)	24,000
Subtotal	$180,000
Less 60% of Train dividends declared in 2016 (60% $8,000)	(4,800)
Subtotal	$175,200
Cost to acquire additional shares (new issue)	80,000
64% of Train 2017 income ($50,000 64%)	32,000
Subtotal	$287,200
Less 64% of Train dividends declared in 2017 (64% $10,000)	(6,400)
Investment balance, December 31, 2017	$280,800

The trial balances of the two companies as of December 31, 2017, are as follows:

	Mitta Corporation	Train Company
Cash	106,200	63,500
Accounts Receivable	113,600	60,000
Inventory	350,000	80,000
Investment in Train Company	280,800
Property, Plant, and Equipment	1,800,000	360,000
Accumulated Depreciation	(600,000)	(89,500)
Accounts Payable	(180,000)	(64,000)
Other Current Liabilities	(26,000)	(8,000)
Bonds Payable	(500,000)
Common Stock ($10 par)	(1,000,000)
Common Stock ($5 par)		(125,000)
Paid-In Capital in Excess of Par		(125,000)
Retained Earnings, January 1, 2017	(212,600)	(112,000)
Sales	(1,950,000)	(600,000)
Subsidiary Income	(32,000)
Cost of Goods Sold	1,170,000	420,000
Other Expenses	630,000	130,000
Dividends Declared	50,000	10,000
Totals	0	0

Prepare the worksheet necessary to produce the consolidated financial statements of Mitta Corporation and its subsidiary as of December 31, 2017. Include the determination and distribution of excess and income distribution schedule.

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