Pruitt Corporation owns 90% of the common stock of Sedbrook Company. The stock was purchased for $540,000 on January 1, 2017, when Sedbrook Company?s retained earnings were $100,000. Preclosing trial balances for the two companies at December 31, 2021, are presented here:

The January 1, 2021, inventory of Sedbrook Company includes $30,000 of profit recorded by Pruitt Corporation on 2020 sales. During 2021, Pruitt Corporation made intercompany sales of $200,000 with a markup of 25% on cost. The ending inventory of Sedbrook Company includes goods purchased in 2021 from Pruitt for $50,000. Pruitt Corporation uses the partial equity method to record its investment in Sedbrook Company.

Required:

A. Prepare the consolidated statements workpaper for the year ended December 31, 2021.

B. Calculate consolidated retained earnings on December 31, 2021, using the analytical or t-account approach.

Transcribed Image Text:

Pruitt Corporation Sedbrook Company $ 83,000 $ 80,000 Cash Accounts Receivable (net) 213,000 112,500 Inventory 1/1 150,000 110,000 Investment in Sedbrook Co. 578,250 Other Assets 500,000 400,000 Dividends Declared 100,000 30,000 350,000 Purchases 850,000 137,500 Other Expenses 180,000 $1,220,000 $2,654,250 $ 70,000 $ 30,000 Accounts Payable Other Liabilities 75,000 40,000 Common Stock 500,000 800,000 Retained Earnings 562,000 120,000 530,000 Sales 1,100,000 Equity in Subsidiary Income 47,250 $1,220,000 $2,654,250 $ 200,000 $ 120,000 Ending Inventory