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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