Problem

Separate-company financial statements for Pun Corporation and its subsidiary, Son Company,...

Separate-company financial statements for Pun Corporation and its subsidiary, Son Company, at and for the year ended December 31, 2012, are summarized as follows (in thousands):

 

Pun

Son

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

Sales

$400

$100

Income from Son

21.6

Cost of sales

(250)

(50)

Expenses

(100.6)

(26)

Net income

71

24

Add: Retained earnings January 1

181

34

Deduct: Dividends

(50)

(16)

Retained earnings December 31

$202

$ 42

Balance Sheet at December 31

Cash

$ 18

$ 15

Accounts receivable—net

80

20

Dividends receivable from Son

7.2

Note receivable from Pun

5

Inventory

95

10

Investment in Son

226.8

Land

65

30

Buildings—net

170

80

Equipment—net

130

50

Total assets

$792

$210

Accounts payable

$ 85

$ 10

Note payable to Son

5

Dividends payable

8

Capital stock, $10 par

500

150

Retained earnings

202

42

Total equities

$792

$210

ADDITIONAL INFORMATION

1. Pun Corporation acquired 13,500 shares of Son Company stock for $15 per share on January 1, 2011, when Son’s stockholders’ equity consisted of $150,000 capital stock and $15,000 retained earnings.


2. Son Company’s land was undervalued when Pun acquired its interest, and accordingly, $20,000 of the fair value/book value differential was assigned to land. Any remaining differential is goodwill.


3. Son Company owes Pun $5,000 on account, and Pun owes Son $5,000 on a note payable.

REQUIRED : Prepare consolidation workpapers for Pun Corporation and Subsidiary for the year ended December 31, 2012.

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