Comparative adjusted trial balances for Ply Corporation and Ski Corporation are given here. Ply Corporation acquired an 80 percent interest in Ski Corporation on January 1, 2011, for $80,000 cash. Except for inventory items that were undervalued by $1,000 and equipment that was undervalued by $4,000, all of Ski’s identifiable assets and liabilities were stated at their fair values on December 31, 2010. The remaining excess was assigned to previously unrecorded intangibles, which had a 40-year remaining life.
Ski Corporation sold the undervalued inventory items during 2011 but continues to own the equipment, which had a four-year remaining useful life as of December 31, 2010. (All amounts are in thousands.)
| December 31, 2010 | December 31, 2011 | December 31, 2012 | |||
| Ply | Ski | Ply | Ski | Ply | Ski |
Cash | $100 | $ 30 | $ 24.7 | $ 15 | $ 26.7 | $ 20 |
Trade receivables—net | 30 | 15 | 25 | 20 | 45 | 30 |
Dividends receivable | — | — | 4 | — | 4 | — |
Inventories | 50 | 20 | 40 | 30 | 40 | 30 |
Plant and equipment—net | 90 | 60 | 100 | 55 | 95 | 60 |
Investment in Ski | — | — | 86.3 | — | 94.3 | — |
Cost of sales | 100 | 40 | 105 | 35 | 110 | 35 |
Operating expenses | 20 | 30 | 35 | 30 | 30 | 35 |
Dividends | 10 | 5 | 10 | 5 | 15 | 10 |
| $400 | $200 | $430 | $190 | $460 | $220 |
Accounts payable | $ 30 | $ 35 | $ 20.7 | $ 15 | $ 17.7 | $ 25 |
Dividends payable | 10 | — | 9 | 5 | 6 | 5 |
Capital stock | 100 | 40 | 100 | 40 | 100 | 40 |
Other paid-in capital | 60 | 20 | 60 | 20 | 60 | 20 |
Retained earnings | 50 | 25 | 70 | 30 | 90.3 | 40 |
Sales | 150 | 80 | 160 | 80 | 170 | 90 |
Income from Ski | — | — | 10.3 | — | 16 | — |
| $400 | $200 | $430 | $190 | $460 | $220 |
REQUIRED: Prepare consolidation workpapers for Ply Corporation and Subsidiary for 2011 and 2012 using the financial statement approach. (Hint: Ply Corporation’s accountant applied the equity method correctly for 2011 but misapplied the equity method for 2012.)
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