P7-3 Subsidiary purchases parent bonds The separate trial balance for Thanos SA and Merry SA, its 90 percent-owned subsidiary, for the year ended 2014 is as follows:

Debits Thanos SA Merry SA Cash $700 $600 Accounts receivable 1,000 400 Interest receivable 0 25 Inventory 1,100 700 Land 1,900 800 Equipment-net 1,100 1,400 Building-net 2,000 1,400 Investment in Thanos SA bonds 0 460 Investment in Merry SA 3,600 0 Cost of sales 2,800 2,400 Interest expense 100 0 Other expenses 1,100 700 Dividends 300 100 Total $15,700 $8,985 Credits Accounts payable $1,300 $1,000 Interest payable 50 0 10% bonds payable 1,000 0 Common stock 5,000 2,000 Retained Earnings 3,380 2,085 Sales 4,800 3,700 Gain on sale of land 0 200 Gain on sale of equipment 100 0 Interest income 70 0 Total $15,700 $8,985 266 CHAPTER 7 ADDITIONAL INFORMATION 1. Thanos SA acquired Merry SA when the book value of its net identifiable assets equaled the fair value.

2. Intercompany merchandise sale during 2014 by Thanos SA to Merry SA was $800,000 while unrealized profit of $100,000 remained in the ending inventory.

3. Thanos SA purchased land from Merry SA with book value of $800,000 for $1,000,000 in 2014. Thanos SA holds the land until 2015.

4. Merry SA purchased equipment from Thanos SA for $700,000 on December 31, 2014. The gain from selling this equipment was $100,000.

5. On January 1, 2014, Merry SA purchased half of Thanos SA’s 10 percent outstanding bonds that were originally issued at par for $440,000. The bonds will mature on January 1, 2017. The bonds paid interest every January 1 and July 1.

REQuIRED: Prepare consolidation workpapers for Thanos SA and subsidiary for the year ended December 31, 2014.