Pruitt Corporation owns 90% of the common stock of Sedbrook Company. The stock was purchased for $540,000 on January 1, 2022, when Sedbrook Company’s retained earnings were $100,000. Preclosing trial balances for the two companies at December 31, 2026, are presented here:

The January 1, 2026, inventory of Sedbrook Company includes $30,000 of profit recorded by Pruitt Corporation on 2025 sales. During 2026, Pruitt Corporation made intercompany sales of $200,000 with a markup of 25% on cost. The ending inventory of Sedbrook Company includes goods purchased in 2026 from Pruitt for $50,000. Pruitt Corporation uses the complete equity method to record its investment in Sedbrook Company.

Required:
A. Prepare the consolidated statements workpaper for the year ended December 31, 2026.
B. Calculate consolidated retained earnings on December 31, 2026, using the analytical or T-account approach.

Transcribed Image Text:

Cash Accounts Receivable (net) Inventory 1/1 Investment in Sedbrook Co. Other Assets Dividends Declared Purchases Other Expenses Accounts Payable Other Liabilities Common Stock Retained Earnings, 1/1 Sales Equity in Subsidiary Income Ending Inventory Pruitt Corporation $ 83,000 213,000 150,000 568,250 500,000 100,000 850,000 180,000 $2,644,250 $ 70,000 75,000 800,000 532,000 1,100,000 67,250 $2,644,250 $200,000 Sedbrook Company $ 80,000 112,500 110,000 400,000 30,000 350,000 137,500 $1,220,000 $ 30,000 40,000 500,000 120,000 530,000 $1,220,000 $120,000