Downstream WorkpaperPartial Equity Method Pruitt Corporation owns 90% of the common stock of Sedbrook Company. The stock
Question:
Downstream Workpaper—Partial Equity Method 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: LO5 Pruitt Corporation Sedbrook Company Cash $ 83,000 $ 80,000 Accounts Receivable (net) 213,000 112,500 Inventory 1/1 150,000 110,000 Investment in Sedbrook Co. 578,250 Other Assets 500,000 400,000 Dividends Declared 100,000 30,000 Purchases 850,000 350,000 Other Expenses ___ 180,000 137,500 $2,654,250 $1,220,000 Accounts Payable $ 70,000 $ 30,000 Other Liabilities 75,000 40,000 Common Stock 800,000 500,000 Retained Earnings 562,000 120,000 Sales 1,100,000 530,000 Equity in Subsidiary Income ___ 47,250 $2,654,250 $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 partial 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 taccount approach.
Step by Step Answer: