Complete Equity with Downstream Sales (Note: This is the same problem as Problem 6-11, but assuming the

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Complete Equity with Downstream Sales (Note: This is the same problem as Problem 6-11, but assuming the use of the complete equity method.) LO5 Pruitt Corporation owns 90% of the common stock of Sedbrook Company. The stock was purchased for $540,000 on January 1, 2000, when Sedbrook Company’s retained earnings were $100,000. Preclosing trial balances for the two companies at December 31, 2004, are presented here:
Pruitt Sedbrook Corporation Company Cash $ 83,000 $ 80,000 Accounts Receivable (net) 213,000 112,500 Inventory 1/1 150,000 110,000 Investment in Sedbrook Co. 568,250 Other Assets 500,000 400,000 Dividends Declared 100,000 30,000 Purchases 850,000 350,000 Other Expenses 180,000 137,500 $2,644,250 $1,220,000 Accounts Payable $ 70,000 $ 30,000 Other Liabilities 75,000 40,000 Common Stock 800,000 500,000 Retained Earnings, 1/1 532,000 120,000 Sales 1,100,000 530,000 Equity in Subsidiary Income 67,250 $2,644,250 $1,220,000 Ending Inventory $ 200,000 $ 120,000 The January 1, 2004, inventory of Sedbrook Company includes $30,000 of profit recorded by Pruitt Corporation on 2003 sales. During 2004, 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 2004 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, 2004.
B. Calculate consolidated retained earnings on December 31, 2004, using the analytical or t-account approach.
C. If you completed Problem 6-11, compare the consolidated balances obtained in requirement A with those obtained in that problem.

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Advanced Accounting

ISBN: 9780471218524

2nd Edition

Authors: Debra C. Jeter, Paul Chaney

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