Problem

Sim Corporation, a 90 percent-owned subsidiary of Pal Corporation, was acquired on January...

Sim Corporation, a 90 percent-owned subsidiary of Pal Corporation, was acquired on January 1, 2011, at a price of $45,000 in excess of underlying book value. The excess was due to goodwill. Separate financial statements for Pal and Sim for 2012 follow (amounts in thousands):

 

Pal

Sim

Combined Income and Retained Earnings Statement for the Year Ended December 31, 2012

 

 

Sales

$300

$100

Income from Sim

31

Gain on sale of equipment

9

Cost of sales

(140)

(50)

Operating expenses

(60)

(10)

Net income

140

40

Add: Beginning retained earnings

157

70

Less: Dividends

(60)

(20)

Retained earnings, December 31

$237

$ 90

Balance Sheet at December 31, 2012

 

 

Cash

$100

$ 17

Accounts receivable

90

50

Dividends receivable

9

Inventories

20

8

Land

40

15

Buildings—net

135

50

Equipment—net

165

60

Investment in Sim

158

Total assets

$717

$200

Accounts payable

$ 98

$ 30

Dividends payable

15

10

Other liabilities

67

20

Capital stock

300

50

Retained earnings

237

90

Total equities

$717

$200

ADDITIONAL INFORMATION

1. Pal sold inventory items to Sim during 2011 and 2012 as follows (in thousands):

 

2011

2012

Sales

$30

$20

Cost of sales to Pal

15

10

Unrealized profit at December 31

5

4


2. Pal sold land that cost $7,000 to Sim for $10,000 during 2011. The land is still owned by Sim.


3. In January 2012, Pal sold equipment with a book value of $21,000 to Sim for $30,000. The equipment is being depreciated by Sim over a three-year period using the straight-line method.


4. On December 30, 2012, Sim remitted $2,000 to Pal for merchandise purchases. The remittance was not recorded by Pal until January 5, 2013, and it is not reflected in Pal’s financial statements at December 31, 2012.

REQUIRED : Prepare a consolidation workpaper for Pal Corporation and Subsidiary for the year ended December 31, 2012.

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