Bon Air, Inc., purchased 70 percent (2,800 shares) of the outstanding voting stock of Creedmoor Corporation on January 1, 2007, for $250,000 cash. Creedmoor’s net assets on that date totaled $230,000, but this balance included three accounts having fair values that differed from their book values:
| Book Value | Fair Value |
Land | $ 30,000 | $ 40,000 |
Equipment (14-year life) | 50,000 | 118,000 |
Liabilities (10-year life) | (70,000) | (50,000) |
As of December 31, 2010, the two companies report the following balances:
| Bon Air | Creedmoor |
Revenues | $ (694,800) | $(250,000) |
Operating expenses | 630,000 | 180,000 |
Investment income | (44,200) | –0– |
Net income | $ (109,000) | $ (70,000) |
Retained earnings, 1/1/10 | $ (760,000) | $(260,000) |
Net income | (109,000) | (70,000) |
Dividends paid | 68,000 | 10,000 |
Retained earnings, 12/31/10 | $ (801,000) | $(320,000) |
Current assets | $ 72,000 | $ 120,000 |
Investment in Creedmoor Corp | 321,800 | –0– |
Land | 241,000 | 50,000 |
Buildings (net) | 289,000 | 200,000 |
Equipment (net) | 165,200 | 40,000 |
Total assets | $ 1,089,000 | $ 410,000 |
Liabilities | $ (180,000) | $ (50,000) |
Common stock | (50,000) | (40,000) |
Additional paid-in capital | (58,000) | –0 |
Retained earnings, 12/31/10 | (801,000) | (320,000) |
Total liabilities and equities | $(1,089,000) | $(410,000) |
Prepare a worksheet to consolidate these two companies as of December 31, 2010. Because Bon Air acquired Creedmoor before the effective date of the acquisition method (2009), the purchase method is appropriate.
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