Problem

Pot Corporation purchased a 70 percent interest in Sod Corporation on January 2, 2011, for...

Pot Corporation purchased a 70 percent interest in Sod Corporation on January 2, 2011, for $98,000, when Sod had capital stock of $100,000 and retained earnings of $20,000. On June 30, 2012, Pot purchased an additional 20 percent interest for $37,000.

Comparative financial statements for Pot and Sod Corporations at and for the year ended December 31, 2012, are as follows (in thousands):

 

Pot

Sod

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

Sales

$400

$200

Income from Sod

24

Cost of sales

(250)

(150)

Expenses

(50)

(20)

Net income

124

30

Add: Beginning retained earnings

200

50

Less: Dividends, December 1

(64)

(10)

Retained earnings, December 31

$260

$ 70

Balance Sheet at December 31

Other assets

$429

$200

Investment in Sod

171

Total assets

$600

$200

Liabilities

$ 40

$30

Common stock

300

100

Retained earnings

260

70

Total equities

$600

$200

REQUIRED

1. Prepare a schedule explaining the $171,000 balance in Pot’s Investment in Sod account at December 31, 2012.


2. Compute goodwill that will appear in the December 31, 2012, consolidated balance sheet.


3. Prepare a schedule computing consolidated net income for 2012.


4. Compute consolidated retained earnings on December 31, 2012.


5. Compute noncontrolling interest on December 31, 2012.

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Solutions For Problems in Chapter 8