P 11-1 Consolidated balance sheets (parent-company and entity theories)

Pom Ltd. acquired a 90 percent interest in Sung Ltd. for $270,000 in January 1, 2014. Sung’s comparative balance sheet immediately before the acquisition is as follows:

Pom Sung Book Value Fair Value Book Value Fair Value Cash $210 $210 $120 $120 Accounts receivable—net 90 100 50 60 Inventories 120 100 100 120 Other current assets 80 80 60 50 Plant assets—net 350 400 200 220 Total assets $850 $890 $530 $570 Liabilities $100 $100 $80 $80 Commoon stock, par 10 600 300 Preferred stock, $10, 1,000 shares, callable at $105, $100 par 100 Retained earnings 150 130 Total equities $850 $610 ADDITIONAL INFORMATION 1. Sung’s net income and dividends during 2014 are $50,000 and $20,000, respectively.

2. Any excess other than plant assets are realized during 2014, while excess for plant assets is still held and depreciated using the straight-line method over 10 years.

REQuIRED 1. Prepare consolidation workpaper under the parent-company theory.

2. Prepare consolidation workpaper under the entity theory.