Consolidated Workpaper, Partially Owned Subsidiary—Subsequent Years On January 1, 2003, Perez Company purchased 90% of the capital stock of Sanchez Company for $85,000. Sanchez Company had capital stock of $70,000 and retained earnings of $12,000 at that time. On December 31, 2007, the trial balances of the two companies were: LO6 Cash Accounts Receivable Inventory, 1/1 Advance to Sanchez Company Investment in Sanchez Company Plant and Equipment Land Dividends Declared Purchases Other Expenses Total Debits Accounts Payable Other Liabilities Advance from Perez Company Capital Stock Retained Earnings Sales Dividend Income Total Credits Inventory, 12/31 Perez Sanchez $ 13,000 $ 14,000 22,000 36,000 14,000 8,000 8,000 —)—
85,000 I 50,000 44,000 17,800 6,000 10,000 12,000 84,000 20,000 10,000 16,000 $313,800 $156,000 $ 6,000 $ 6,000 37,000 —0—
—0— 8,000 100,000 70,000 50,000 30,000 110,000 42,000 10,800 —I0—
$313,800 $156,000 $ 40,000 $ 15,000 Any difference between cost and book value relates to goodwill.
Required:
A. What method is being used by Perez to account for its investment in Sanchez Company?
How can you tell?
B. Prepare a workpaper for the preparation of consolidated financial statements on 12731707.