Problem

Pep Company paid $99,000 for a 90 percent interest in Sim on January 5, 2011, when Sim’s c...

Pep Company paid $99,000 for a 90 percent interest in Sim on January 5, 2011, when Sim’s capital stock was $60,000 and its retained earnings $20,000. Trial balances for the companies at December 31, 2014, are as follows (in thousands):

 

Pep

Sim

Cash

$ 11

$ 15

Accounts receivable

15

25

Plant assets

220

180

Investment in Sim

136.8

Cost of goods sold

50

30

Operating expenses

25

40

Dividends

20

10

 

$477.8

$300

Accumulated depreciation

$ 90

$ 50

Liabilities

80

30

Capital stock

100

60

Paid-in excess

20

Retained earnings

71.6

70

Sales

100

90

Income from Sim

16.2

 

$477.8

$300

The excess fair value over book value acquired was assigned $10,000 to undervalued inventory items that were sold in 2011 and the remainder to patents having a remaining useful life of 10 years from January 1, 2011.

REQUIRED

1. Summarize the changes in Pep Company’s Investment in Sim account from January 5, 2011, through December 31, 2014.


2. Prepare consolidation workpapers for Pep Company and Sim for 2014 using the trial balance approach for your workpapers.

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