PAL Corporation acquired 40% of the outstanding preferred stock of Saltz, Inc. for $60,000 and 90% of that firm’s outstanding common stock for $600,000 on January 1, 2010. On the date that the controlling interest was acquired, the stockholders’ equity section of Saltz, Inc. was as follows. Preferred stock—10%, cumulative, fully participating, liquidation value is equal to par value $100,000

Common stock—$10 par value........400,000
Retained earnings.............200,000

Total................$700,000

There were no dividends in arrears on January 1, 2010. For the fiscal year ended December

31, 2010, Saltz, Inc. reported net income of $130,000. No cash or stock dividends were declared by the company during 2010.

The difference between the implied and book value of the equity interest in the common stock relates to the land owned by Saltz, Inc. Condensed financial information for the two companies at December 31, 2010, is presented below.

Required:
A. Prepare a schedule to compute the difference between the implied value of the common stock and the book value of Saltz.
B. Prepare consolidated statements workpapers for the year ended December 31,2011.

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PAL Salte Inc. Corp Income Statement Date Sales Interest, Dividends, ad Other Revenues $890,000 91,000 (500,000) 830,000) $750,000 50,000 (400,000) 280,000) Cost of Goods Sold Selling, Administrative, and Other Expenses Net Income S120,000 Retained Earmings 1/1 Balance Net Income Less: Dividends Declared 12/31 Balance Balance Sheet $560,000 151,000 $330,000 120,000 (90,000) 8360,000 711,000 Current Assets Investment in Common Stock Investment in Preferred St Other Assets S 810,000 600,000 60,000 1,276,000 S2,746.000 8380,000 ock 600,000 $980,000 Totals $1,385,000 Liabilities Preferred Stock Gomimon SLOCK Retained Earnings 700,000 711,000 $2,746,000 $120,000 100,000 400,000 860,000 S980,000 Totals