Pat Corporation acquired an 80 percent interest in Sci Corporation for $480,000 on January 1, 2011, when Sci’s stockholders’ equity consisted of $400,000 capital stock and $50,000 retained earnings. The excess fair value over book value acquired was assigned to plant assets that were undervalued by $100,000 and to goodwill. The undervalued plant assets had a four-year useful life.
ADDITIONAL INFORMATION
1. Pat’s account receivable includes $10,000 owed by Sci.
2. Sci mailed its check for $40,000 to Pat on December 30, 2012, in settlement of the advance.
3. A $20,000 dividend was declared by Sci on December 30, 2012, but was not recorded by Pat.
4. Financial statements for Pat and Sci Corporations for 2012 follow (in thousands):
| Pat | Sci |
Statements of Income and Retained Earnings for the Year Ended December 31 | ||
Sales | $1,800 | $600 |
Income from Sci | 76 | — |
Cost of sales | (1,200) | (300) |
Operating expenses | (380) | (180) |
Net Income | 296 | 120 |
Add: Retained earnings January 1 | 244 | 100 |
Less: Dividends | (200) | (40) |
Retained earnings December 31 | $ 340 | $180 |
Balance Sheet at December 31 | ||
Cash | $ 12 | $ 30 |
Accounts receivable—net | 52 | 40 |
Inventories | 164 | 120 |
Advance to Sci | 40 | — |
Other current assets | 160 | 10 |
Land | 320 | 60 |
Plant assets—net | 680 | 460 |
Investment in Sci | 560 | — |
Total assets | $1,988 | $720 |
Accounts payable | $ 48 | $ 30 |
Dividends payable | — | 20 |
Other liabilities | 200 | 90 |
Capital stock | 1,400 | 400 |
Retained earnings | 340 | 180 |
Total liabilities and stockholders’ equity | $1,988 | $720 |
REQUIRED: Prepare consolidation workpapers for Pat Corporation and Subsidiary for 2012.
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