Assignment:
Prat Corporation paid $24,800 for an 80% interest in Sage Corporation on January 1, 2002, at which time Sage’s stockholders’ equity consisted of $15,000 of Common Stock and $6,000 of Retained Earnings. The fair values of Sage Corporation’s assets and liabilities were identical to recorded book values when Prat acquired its 80% interest.
Sage Corporation reported net income of $4,000 and paid dividends of $2,000 during 2002.
Prat Corporation sold inventory items to Sage during 2002 and 2003 as follows:
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2002
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2003
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Prat's sales to Sage
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$ 5,000
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$ 6,000
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Prat's cost of sales to Sage
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3,000
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3,500
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Unrealized profit at year-end
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1,000
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1,500
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The accounts payable of Sage include $1,500 owed to Prat for inventory purchases.
The following conversion to equity schedule provides information that may be helpful in completing the consolidation working papers for the year ended December 31, 2003.
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Retained
Earnings
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Investment
in Sage
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Income
from Sage
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Prior years:
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Inventory profit
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$
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( 1,000 )
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$( 1,000 )
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Current year:
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Inventory profit-2002
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$
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$ 1,000
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$ 1,000
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Inventory profit-2003
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$
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$( 1,500 )
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$(1,500 )
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Totals
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$
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( 1,000 )
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$( 1,500 )
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$( 500 )
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Required:
Financial statements of Prat and Sage appear in the first two columns of the partially completed working papers. Complete the consolidation working papers for Prat Corporation and Subsidiary for the year ended December 31, 2003.
Prat Corporation and Subsidiary
Consolidation Working Papers
for the year ended December 31, 2003
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Prat
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Sage
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Eliminations
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Balance
Sheet
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Debit
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Credit
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INCOME STATEMENT
Sales
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$
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43,000
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$20,000
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Income from
Sage
Income from Sidd
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7,200
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Cost of Sales
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( 22,000)
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( 8,000)
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Other expenses
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( 12,200)
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( 3,000)
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Net income
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16,000
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9,000
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Retained
Earnings 1/1
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10,000
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8,000
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Add:
Net income
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16,000
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9,000
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Less:
Dividends
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( 10,000)
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( 5,000)
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Retained
Earnings 12/31
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$
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16,000
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$12,000
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BALANCE SHEET
Cash
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5,400
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3,000
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Accounts
Receivable-net
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14,000
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10,000
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Dividend
Receivable
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2,000
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Inventories
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18,000
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8,000
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Goodwill
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Equipment and
Buildings-net
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24,000
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31,000
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Investment in
Sage
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29,600
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TOTAL ASSETS
TOTAL ASSETS
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$
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93,000
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$52,000
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EQUITIES
Accounts payable
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17,500
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12,500
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Dividend payable
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7,000
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2,500
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Other debt
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12,500
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10,000
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Capital stock
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40,000
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15,000
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Retained
Earnings
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16,000
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12,000
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1/1 Minority
Interest
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12/31 Minority
Interest
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TOTAL EQUITIES
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$
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93,000
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$52,000
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