Workpaper (mid-year acquisition of 80% interest, downstream inventory sales)


Question Description:

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Workpaper (mid-year acquisition of 80% interest, downstream inventory sales) Pop Corporation acquired an 80 percent interest in Sat Corporation on October 1, 2011, for $82,400, equal to 80 percent of the underlying equity of Sat on that date plus $16,000 goodwill (total goodwill is $20,000). Financial statements for Pop and Sat Corporations for 2011 are as follows (in thousands): Pop Sat Combined Income and Retained Earnings Statement for the Year Ended December 31 Sales $112 $ 50 Income from Sat 3.8 — Cost of sales (60) (20) Operating expenses (25.1 ) (6 ) Net income 30.7 24 Retained earnings January 1 30 20 Dividends (20) (10 ) Retained earnings December 31 $ 40.7 $ 34 Balance Sheet at December 31 Cash $ 5.1 $ 7 Accounts receivable 10.4 17 Note receivable 5 10 Inventories 30 16 Plant assets—net 88 60 Investment in Sat 82.2 — Total assets $220.7 $110 Accounts payable $ 15 $ 16 Notes payable 25 10 Capital stock 140 50 Retained earnings 40.7 34 Total equities $220.7 $110 ADDITIONAL INFORMATION 1. In November 2011, Pop sold inventory items to Sat for $12,000 at a gross profit of $3,000. One-third of these items remained in Sat’s inventory at December 31, 2011, and $6,000 remained unpaid. 2. Sat’s dividends were declared in equal amounts on March 15 and November 15, and its income was earned in proportionate amounts throughout each quarter of the year. 3. Pop applies the equity method such that its net income is equal to the controlling share of consolidated net income. REQUIRED: Prepare a workpaper to consolidate the financial statements of Pop Corporation and Subsidiary for the year ended December 31, 2011.

Answer

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