(Module 1 only) Consolidation Worksheet: Cost Method The comparative financial statements of Pane Inc. and its 100%-owned subsidiary, Sill Inc. (created six years ago), follow:

Pane Inc.

Cost Method®

Equity Method'’

Sill Inc.

Income Statement (2006)

Sales . . $ 400,000 $ 400,000 $ 225,000 Cost of sales . . (210,000) (210,000) (120,000)

Expenses . . d^O-000) (140,000) (80,000)

Dividend income (from Sill) .

Equity in net income (of Sill) .

. 20,000 25,000 Net Income . . $ 70,000

$ 75,000 $ 25,000 Statement of Retained Earnings Balances, 1/1/06 . . $ 150,000 $ 205,000 + Net income . . 70,000 $ 55,000 75,000 25,000 - Dividends declared . . (40,000) (40,000) (20,000)

Balances, 12/31/06 . . S 180,000 $ 240,000 $ 60,000 Balance Sheet (as of 12/31/06)

Cash . . $ 35,000 Accounts receivable, net . . 65,000 $ 35,000 $ 30,000 65,000 45,000 Intercompany receivable . . 15,000 15,000 Inventory . . 190,000 190,000 70,000 Investment in subsidiary . . 50,000 110,000 Property and equipment . . 370,000 370,000 180,000 Accumulated depreciation . . (160,000) (160,000) (40,000)

Total Assets . . $ 565,000 $ 625,000 $ 285,000 Payables and accruals . . $ 135,000 $ 135,000 Intercompany payable . $ 70,000 15,000 Eong-term debt . . 150,000 150,000 90,000 Common stock . . 100,000 100,000 50,000 Retained earnings . . 180,000 240,000 60,000 Total Liabilities and Equity . . $ 565,000 $ 625,000 $ 285,000

® Use this column for working the problem under the cost method, as called for in this problem.

^ Use this column for working the problem under the equity method, as called for in Problem 2-2.

1 Prepare all consolidation entries as of 12/31/06.

2 Prepare a consolidation worksheet at 12/31/06.
3 What is the maximum additional cash dividend the parent can declare ($180,000 or $240,000)
if cash were available?