COMPREHENSIVE: Recording the Acquisition and Selecting Relevant Data; Consolidation Worksheet On 7/1/06, PBM Inc. acquired 100% of SOS Inc.’s outstanding common stock by is-

suing 6,000 shares of its $10 par value common stock (which was trading at $70 per share on that date). In addition, PBM incurred direct costs of $90,000 relating to the acquisition, $40,000 of which was to register the shares issued with the SEC. Selected relevant data follow;
June 30, 2006 Book Current Remaining Value Value Life SOS Inventory . $ 66,000 $ 70,000 3 months Buildings and equipment . 310,000“ 382,000 12 years Goodwill . 20,000 -0- 5 years Long-term debt . 400,000 384,000 8 years Common stock . 200,000 Retained earnings . 138,000 PBM Common stock . 100,000 Additional paid-in capital . 500,000 Retained earnings . 800,000 “ Net of $140,000 accumulated depreciation.
Additional Information 1. Assume that any goodwill arising from the combination has a 10-year life from the acquisition date of 7/1/06.
2. The woK-push-down basis of accounting was selected.
3. The equity method of accounting is to be used.
4. For 2006, SOS had the following earnings and dividends:
Required Jan. 1- July 1-
June 30, 2006 Dec. 31, 2006 Total Sales . $ 400,000 $ 500,000 $ 900,000 Cost of sales . (220,000) (260,000) (480,000)
Expenses . (130,000) (180,000) (310,000)
Net Income . $ 50,000 $ 60,000 $ 110,000 Dividends declared and paid . $ 15,000 $ 20,000 $ 35,000 a net income of $200,000 for the six months ended 6/30/06.
1. Prepare the entry to record the business combination on 7/1/06.
2. Complete PBM’s and SOS’s financial statements that follow:
PBM SOS Income Statement (2006)
Sales .
Cost of sales .
Expenses .
Net Income Statement of Retained Earnings Balances, beginning .
+ Net Income .
- Dividends declared .
Balances, 12/31/06 3. Prepare an analysis of the Investment account updated through 12/31/06.
4. Prepare the consolidation entries at 12/31/06.
5. Prepare a consolidation worksheet at 12/31/06.
Problems for Partially Owned Subsidiaries