Problem

Pal Corporation paid $175,000 for a 70 percent interest in Sid Corporation’s outstanding s...

Pal Corporation paid $175,000 for a 70 percent interest in Sid Corporation’s outstanding stock on April 1, 2011. Sid’s stockholders’ equity on January 1, 2011, consisted of $200,000 capital stock and $50,000 retained earnings.

Accounts and balances at and for the year ended December 31, 2011, follow (in thousands):

 

Pal

Sid

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

Sales

$287.1

$150

Income from Sid

12.3

Gain

12

2

Interest income

5.85

Expenses (includes cost of goods sold)

(200)

(117.85)

Interest expense

(11.4)

Net income

100

40

Add: Beginning retained earnings

250

50

Less: Dividends

(50)

(20)

Retained earnings December 31

$300

$ 70

Balance Sheet at December 31

Cash

$ 17

$ 4

Interest receivable

6

Inventories

140

60

Other current assets

110

20

Plant assets—net

502.7

107.3

Investment in Sid common

180.3

Investment in Pal bonds

102.7

Total assets

$950

$300

Interest payable

$ 6

$ —

Other current liabilities

38.6

30

12% bonds payable

105.4

Common stock

500

200

Retained earnings

300

70

Total equities

$950

$300

ADDITIONAL INFORMATION

1. Sid Corporation paid $102,850 for all of Pal’s outstanding bonds on July 1, 2011. These bonds were issued on January 1, 2011, bear interest at 12 percent, have interest payment dates of July 1 and January 1, and mature 10 years from the date of issue. The $6,000 premium on the issue is being amortized under the straight-line method.


2. Other current liabilities of Sid Corporation on December 31, 2011, include $10,000 dividends declared on December 15 and unpaid at year-end. Sid also declared $10,000 dividends on March 15, 2011.


3. Pal Corporation sold equipment to Sid on July 1, 2011, for $30,000. This equipment was purchased by Pal on July 1, 2008, for $36,000 and is being depreciated over a six-year period using the straight-line method (no salvage value).


4. Sid sold land that cost $8,000 to Pal for $10,000 on October 15, 2011. Pal still owns the land.


5. Pal uses the equity method for its 70 percent interest in Sid.

REQUIRED: Prepare a consolidation workpaper for the year ended December 31, 2011.

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