Par Corporation acquired a 90 percent interest in Sag Corporation’s outstanding voting common stock on January 1, 2011, for $630,000 cash. The stockholders’ equity of Sag on this date consisted of $500,000 capital stock and $200,000 retained earnings.
The financial statements of Par and Sag at and for the year ended December 31, 2011, are summarized as follows (in thousands):
| Par | Sag |
Combined Income and Retained Earnings Statement for the Year Ended December 31, 2011 | ||
Sales | $ 700 | $ 500 |
Income from Sag | 70 | — |
Gain on land | — | 10 |
Gain on equipment | 20 | — |
Cost of sales | (300) | (300) |
Depreciation expense | (90) | (35) |
Other expenses | (200) | (65) |
Net income | 200 | 110 |
Beginning retained earnings | 600 | 200 |
Dividends | (100) | (50) |
Retained earnings December 31 | $ 700 | $ 260 |
Balance Sheet at December 31, 2011 | ||
Cash | $ 35 | $ 30 |
Accounts receivable—net | 90 | 110 |
Inventories | 100 | 80 |
Other current items | 70 | 40 |
Land | 50 | 70 |
Buildings—net | 200 | 150 |
Equipment—net | 500 | 400 |
Investment in Sag | 655 | — |
| $1,700 | $ 880 |
Accounts payable | $ 160 | $ 50 |
Other liabilities | 340 | 70 |
Capital stock, $10 par | 500 | 500 |
Retained earnings | 700 | 260 |
| $1,700 | $ 880 |
During 2011, Par made sales of $50,000 to Sag at a gross profit of $15,000. One-third of these sales were inventoried by Sag at year-end. Sag owed Par $10,000 on open account at December 31, 2011. Sag sold land that cost $20,000 to Par for $30,000 on July 1, 2011. Par still owns the land. On January 1, 2011, Par sold equipment with a book value of $20,000 and a remaining useful life of four years to Sag for $40,000. Sag uses straight-line depreciation and assumes no salvage value on this equipment.
REQUIRED: Prepare a consolidation workpaper for Par and Subsidiary for the year ended December 31, 2011.
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