P4-2 Workpaper in year of acquisition Liam AB acquired an 80 percent ownership in Theo AB on January 1, 2014, for $10mn, when Theo AB’s stockholders’ equity consisted of $2,000,000 capital stock and $8,000,000 retained earnings.

Theo AB’s assets and liabilities were at book value equal to the fair value at the time. Separate financial statements of Liam AB and Theo AB at December 31, 2014, are as follows (in thousands):

Liam AB Theo AB Combined Income and Retained Earnings Statements for the Year Ended December 31 Sales $67,000 $30,500 Income from Theo AB 1,200 —

Cost of sales (42,000) (25,000)

Expenses (21,900) (4,000)

Net income 4,300 1,500 Add: Beginning retained January 1 11,600 8,000 Deduct: Dividends (3,000) (500)

Retained earnings December 31 $12,900 $ 9,000 Balance Sheet at December 31 Cash $ 800 $ 600 Accounts receivable-net 1,300 800 Dividends receivable 400 —

Inventories 2,600 400 Other current assets 1,200 1,800 Land 3,000 4,200 Buildings-net 3,200 3,600 Equipment-net 2,200 2,400 Investment in Theo AB 10,800 —

Total Assets $25,500 $13,800 Accounts payable $ 1,000 $ 400 Dividends payable 2,500 500 Notes payable 4,100 1,900 Capital Stock, $10 par 5,000 2,000 Retained earnings 12,900 9,000 Total liabilities and equities $25,500 $13,800 No dividends declared by Theo AB during the year were paid.

R E Q u I R E D : Prepare consolidation workpapers for Liam AB and Subsidiary for the year ended December 31, 2014.