10. " 12 14 15 17 19 28 22 23 24 25 26 27 28 29 31 24 27 19 40 41 45 74 19 Problem 2 Pat Corporation and Subsidiary Consolidated Working Paper For the year ended Decmeber 31, 2010 As and Debits Consolidated Credits Statement Problem 2 Pat Corporation acquired a 75% interest in Sun Corporation for $300,000 on January 1, 2009, when Sun's equity consisted of $150,000 capital stock and $50,000 retained earnings. The fair values of Sun's assets and liabilities were equal to their book values on this date. The excess purchase price was allocated to an unrecorded patent, which ha a remaining life of 10 years. Pat uses the equity method of accounting for Sun. During 2009, Pat sold inventory items to Sun for $80,000, and at December 31, 2009, Sun's inventory included items in which there were $10,000 unrealized profits. During 2010, Pat sold inventory items to Sun for $130,000, and at December 31, 2010, Sun's inventory included items on which there were $20,000 unrealized profits. On December 31, 2010, Sun owed Pat $15,000 on account for merchandise purchases. The financial statements of Pat and Sun Corporations at and for the year ended December 31, 2010, are summarized as follows: Combined Income and Retained Earnings Statements For the year ended December 31, 2010 Pat 75% Sun Income Statement Sales Income from Sun Cost of goods sold Operating expenses Balance Sheet Cash $600,000 $ 400,000 90,000 270,000 210,000 Inventory 145,000 40,000 Land Accounts receivable Dividend receivable $ 85,000 $30,000 165.000 15,000 100,000 60.000 80,000 80,000 50,000 Controlling Share of Net income $275,000 $ 150,000 Retained Earnings Building-net Equipment-net Retained earnings, January 1 $ 172,500 $ 90,000 Investment in Sun Add: Net income Deduct Dividends Retained Earnings - December 31 275,000 150.000 $297,500 $ 150,000 Total assets 230.000 100,000 200,000 140,000 362,500 $1,197,500 $500,000 50.000 190,000 Liabilities and Stockholder' Equity Accounts payable $ 225,000 $100,000 Dividend payable Other liabilitites Common stock, $10 par Retained earnings 70,000 20,000 155,000 40,000 450,000 150,000 297,500 190,000 Instructions Total liabilities and stockholders's equity $1,197,500 $500,000 Prepare consolidation working papers for Pat Corporation and Subsidiary for the year ended December 31, 2010.