Pun Corporation acquired 80 percent of Set Corporations preferred stock for $175,000 and 90 percent of Sets

Question:

Pun Corporation acquired 80 percent of Set Corporation’s preferred stock for $175,000 and 90 percent of Set’s common stock for $630,000 on July 1, 2011. Set’s stockholders’ equity on December 31, 2011, was as follows (in thousands):

Stockholders’ Equity

9% preferred stock, cumulative, nonparticipating,

$100 par, call price $105 .......... $200

Common stock, $10 par .............. 500

Paid-in capital in excess of par ............ 40

Retained earnings ................. 160

Total stockholders’ equity .............. $900

Set had net income of $24,000 in 2010 and $46,000 in 2011, but declared no dividends in either year. Assume that preferred dividends accrue ratably throughout each year and that Set’s net assets were fairly valued on July 1, 2011.

REQUIRED

1. Determine the account balances of Pun Corporation’s investments in Set’s preferred and common stocks at December 31, 2011, on the basis of a one-line consolidation.

2. Prepare workpaper entries to consolidate the balance sheets of Pun and Set at December 31, 2011.

Common Stock
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