P 5-9 Consolidated workpaper (noncontrolling interest, upstream sales, intercompany receivables/payables)

Pop Corporation purchased a 90 percent interest in Son Corporation on December 31, 2016, for

$5,400,000 cash, when Son had capital stock of $4,000,000 and retained earnings of $1,000,000. All Son’s assets and liabilities were recorded at fair values when Pop acquired its interest. The excess of fair value over book value is goodwill.

The Pop–Son affiliation is a vertically integrated merchandising operation, with Son selling all of its output to Pop Corporation at 140 percent of its cost. Pop sells the merchandise acquired from Son at 150 percent of its intercompany purchase price. All of Pop’s December 31, 2018, and December 31, 2019, inventories of $560,000 and $840,000, respectively, were acquired from Son.

Son’s December 31, 2018, and December 31, 2019, inventories were $1,600,000 each.

Pop’s accounts payable at December 31, 2019, includes $200,000 owed to Son from 2019 purchases.

Comparative financial statements for Pop and Son Corporations at and for the year ended December 31, 2019, are as follows:

Pop Son Combined Income and Retained Earnings Statement for the Year Ended December 31, 2019 (in thousands)

Sales $ 16,380 $11,200 Income from Son 1,728 —

Cost of sales (10,920) (8,000)

Other expenses (3,088) (1,200)

Net income 4,100 2,000 Add: Beginning retained earnings 2,500 1,400 Deduct: Dividends (2,000) (1,000)

Retained earnings December 31, 2019 $ 4,600 $ 2,400 Pop Son Balance Sheet at December 31, 2019 Cash $ 1,516 $ 1,000 Inventory 840 1,600 Other current assets 1,200 400 Plant assets—net 6,000 6,000 Investment in Son 6,444 —
Total assets $ 16,000 $ 9,000 Current liabilities $ 3,400 $ 2,600 Capital stock 8,000 4,000 Retained earnings 4,600 2,400 Total equities $ 16,000 $ 9,000 REQuIRED: Prepare a consolidation workpaper for Pop Corporation and Subsidiary for the year ended December 31, 2019.