Prepare a consolidation workpaper for the year ended December 31, 2011.


Question Description:

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Workpaper (noncontrolling interest, preacquisition income, downstream sale of equipment, upstream sale of land, subsidiary holds parent’s bonds) Pal Corporation paid $175,000 for a 70 percent interest in Sid Corporation’s outstanding stock on April 1, 2011. Sid’s stockholders’ equity on January 1, 2011, consisted of $200,000 capital stock and $50,000 retained earnings. Accounts and balances at and for the year ended December 31, 2011, follow (in thousands): Pal Sid Combined Income and Retained Earnings Statement for the Year Ended December 31 Sales $287.1 $150 Income from Sid 12.3 — Gain 12 2 Interest income — 5.85 Expenses (includes cost of goods sold) (200) (117.85) Interest expense (11.4 ) — Net income 100 40 Add: Beginning retained earnings 250 50 Less: Dividends (50) (20) Retained earnings December 31 $300 $ 70 Balance Sheet at December 31 Cash $ 17 $ 4 Interest receivable — 6 Inventories 140 60 Other current assets 110 20 Plant assets—net 502.7 107.3 Investment in Sid common 180.3 — Investment in Pal bonds — 102.7 Total assets $950 $300 Interest payable $ 6 $ — Other current liabilities 38.6 30 12% bonds payable 105.4 — Common stock 500 200 Retained earnings 300 70 Total equities $950 $300 ADDITIONAL INFORMATION 1. Sid Corporation paid $102,850 for all of Pal’s outstanding bonds on July 1, 2011. These bonds were issued on January 1, 2011, bear interest at 12 percent, have interest payment dates of July 1 and January 1, and mature 10 years from the date of issue. The $6,000 premium on the issue is being amortized under the straight-line method. 2. Other current liabilities of Sid Corporation on December 31, 2011, include $10,000 dividends declared on December 15 and unpaid at year-end. Sid also declared $10,000 dividends on March 15, 2011. 3. Pal Corporation sold equipment to Sid on July 1, 2011, for $30,000. This equipment was purchased by Pal on July 1, 2008, for $36,000 and is being depreciated over a six-year period using the straight-line method (no salvage value). 4. Sid sold land that cost $8,000 to Pal for $10,000 on October 15, 2011. Pal still owns the land. 5. Pal uses the equity method for its 70 percent interest in Sid. REQUIRED: Prepare a consolidation workpaper for the year ended December 31, 2011.

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