Problem

Par Corporation acquired a 70 percent interest in Sol Corporation’s outstanding voting com...

Par Corporation acquired a 70 percent interest in Sol Corporation’s outstanding voting common stock on January 1, 2011, for $490,000 cash. The stockholders’ equity of Sol on this date consisted of $500,000 capital stock and $100,000 retained earnings. The difference between the fair value of Sol and the underlying equity acquired in Sol was assigned $5,000 to Sol’s undervalued inventory, $14,000 to undervalued buildings, $21,000 to undervalued equipment, and $60,000 to goodwill.

The undervalued inventory items were sold during 2011, and the undervalued buildings and equipment had remaining useful lives of seven years and three years, respectively. Depreciation is straight line.

At December 31, 2011, Sol’s accounts payable include $10,000 owed to Par. This $10,000 account payable is due on January 15, 2012. Par sold equipment with a book value of $15,000 for $25,000 on June 1, 2011. This is not an intercompany sale transaction. Separate financial statements for Par and Sol for 2011 are summarized as follows (in thousands):

 

Par

Sol

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

Sales

$ 800

$700

Income from Sol

60.2

Gain on equipment

10

Cost of sales

(300)

(400)

Depreciation expense

(155)

(60)

Other expenses

(160)

(140)

Net income

255.2

100

Add: Retained earnings January 1

300

100

Deduct: Dividends

(200)

(50)

Retained earnings December 31

$ 355.2

$150

Balance Sheet at December 31

Cash

$ 96

$ 60

Accounts receivable—net

100

70

Dividends receivable

14

Inventories

150

100

Other current assets

70

30

Land

50

100

Buildings—net

140

160

Equipment—net

570

330

Investment in Sol

515.2

Total assets

$1,705.2

$850

Accounts payable

$ 200

$ 85

Dividends payable

100

20

Other liabilities

50

95

Capital stock, $10 par

1,000

500

Retained earnings

355.2

150

Total equities

$1,705.2

$850

REQUIRED : Prepare consolidation workpapers for Par Corporation and Sol for the year ended December 31, 2011. Use an unamortized excess account.

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