Problem

Par Corporation acquired an 80 percent interest in Sin Corporation on January 1, 2011, for...

Par Corporation acquired an 80 percent interest in Sin Corporation on January 1, 2011, for $108,000 cash, when Sin’s capital stock was $100,000 and retained earnings were $10,000. The difference between investment fair value and book value acquired is due to a patent being amortized over a 10-year period.

Separate financial statements for Par and Sin on December 31, 2014, are summarized as follows (in thousands):

 

Par

Sin

Combined Income and Retained Earnings Statement for the Year Ended December 31, 2014

Sales

$650

$120

Income from Sin

42

Cost of sales

(390)

(40)

Other expenses

(170)

(30)

Net income

132

50

Add: Beginning retained earnings

95.6

20

Deduct: Dividends

(70)

(20)

Retained earnings December 31

$157.6

$ 50

Balance Sheet at December 31, 2014

Cash

$ 58

$ 20

Accounts receivable

40

20

Inventories

60

35

Plant assets

290

205

Accumulated depreciation

(70)

(100)

Investment in Sin

121.6

Total assets

$499.6

$180

Accounts payable

$ 42

$ 30

Capital stock

300

100

Retained earnings

157.6

50

Total equities

$499.6

$180

ADDITIONAL INFORMATION

1. Sin’s sales include intercompany sales of $8,000, and Par’s December 31, 2014, inventory includes $1,000 profit on goods acquired from Sin. Par’s December 31, 2013, inventory contained $2,000 profit on goods acquired from Sin.


2. Par owes Sin $4,000 on account.


3. On January 1, 2013, Sin sold plant assets to Par for $60,000. These assets had a book value of $40,000 on that date and are being depreciated by Par over five years.


4. Park uses the equity method to account for its investment in Sin.

REQUIRED: Prepare a consolidation workpaper for Par Corporation and Subsidiary for 2014.

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