P4-20

(Appendix B) Consolidated financial statements (cost method)

Pop Company paid $88,000 for an 80% interest in Son Company on January 5, 2016, when Son’s capital stock was $60,000 and its retained earnings $40,000. Trial balances for the companies at December 31, 2016, are as follows (in thousands):

Pop Son Cash $ 2.5 $ 15 Accounts receivable 15 25 Other assets 120 100 Investment in Son 88 —

Cost of goods sold 50 30 Operating expenses 25 40 Dividends 20 10

$320.5 $220 Liabilities $ 80 $ 30 Capital Stock 100 60 Paid-in excess 10 —

Retained earnings 22.5 40 Sales 100 90 Dividend income 8 —

$320.5 $220 The only entries that Pop Company made in regard to the investment in Son Company are as follows:

January 5, 2016 Investment in Son (+A) 88,000 Cash (-A) 88,000 November 15, 2016 Cash (+A) 8,000 Dividend income (R, +SE) 8,000 Assets and liabilities of Son are stated at their fair values.

REQuIRED 1. Prepare a balance sheet for Pop Company at December 31, 2016.
2. Prepare a consolidated income statement for Pop Company and Subsidiary for 2016.
3. Prepare a consolidated balance sheet for Pop Company and Subsidiary at December 31, 2016.