Problem

Pil Corporation paid $170,000 for an 80 percent interest in Stu Corporation on December 31...

Pil Corporation paid $170,000 for an 80 percent interest in Stu Corporation on December 31, 2011, when Stu’s stockholders’ equity consisted of $100,000 capital stock and $50,000 retained earnings. A summary of the changes in Pil’s Investment in Stu account from December 31, 2011, to December 31, 2015, follows (in thousands):

Investment cost December 31, 2011

 

$170

Increases

 

 

80% of Stu’s net income 2012 through 2015

 

112

A

 

282

Decreases

 

 

80% of Stu’s dividends 2012 through 2015

$56

 

80% of Amortization of excess fair value over book value:

 

 

Assigned to inventories, $8,750 (sold in 2012)

7

 

Assigned to plant assets, $22,500 (depreciated over a nine-year period) 2012 through 2015

8

 

Assigned to patents, $31,250 (amortized over a five-year period) 2012 through 2015

20

91

Investment balance December 31, 2015

 

$191

Financial statements for Pil and Stu at and for the year ended December 31, 2015, are summarized as follows (in thousands):

 

Pil

Stu

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

Sales

$300

$200

Income from Stu

25

Cost of sales

(180)

(140)

Other expenses

(50)

(20)

Net income

95

40

Add: Retained earnings January 1

255

100

Deduct: Dividends

(50)

(20)

Retained earnings December 31

$300

$120

Balance Sheet at December 31

Cash

$ 41

$ 35

Trade receivables—net

60

55

Dividends receivable

8

Advance to Stu

25

Inventories

125

35

Plant assets—net

300

175

Investment in Stu

191

Total assets

$750

$300

Accounts payable

$ 50

$ 45

Dividends payable

10

Advance from Pil

25

Capital stock

400

100

Retained earnings

300

120

Total equities

$750

$300

ADDITIONAL INFORMATION

1. The accounts payable of Stu at December 31, 2015, include $5,000 owed to Pil.


2. Pil advanced $25,000 to Stu during 2013. This advance is still outstanding.


3. Half of Stu’s 2015 dividends will be paid in January 2016.

REQUIRED : Prepare workpapers to consolidate the balance sheets only of Pil and Stu Corporations at December 31, 2015.

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