Brolga Corporation paid $26,800 cash for a 70% interest in Dance Company on January 1, 2004, when Dance?s stockholders? equity consisted of $15,000 Capital Stock and $9,000 of Retained Earnings. Additional information: 1. The cost-book value differential was allocated to a patent with a 20-year amortization period. 2. Brolga Corporation sold inventory items that cost $4,000 to Dance for $4,800 during 2004 and one-half of these inventory items remained unsold by Dance on December 31, 2004. 3. During 2005 Brolga Corporation sold inventory items that cost $5,000 to Dance for $6,000 and 30% of these inventory items remained unsold by Dance on December 31, 2005. Dance Corporation owed Brolga $700 on account at year-end 2005. 4. Brolga Corporation sold equipment with a 5-year remaining life and a book value of $4,000 to Dance for $5,000 on January 1, 2005. Straight-line depreciation is used. 5. Brolga and Dance pay annual dividends of $10,000 and $3,000, respectively. 6. Separate financial statements for Brolga and Dance Corporations appear on partially completed consolidation working papers. Required: Complete the working papers to consolidate the financial statements for 2005.

Problem # 2 (in thousands) INCOME STATEMENT Sales Gain on plant Income from Dance Cost of sales Depreciation expense Operating expense Noncontrolling int. share Net income RETAINED EARNINGS Retained earnings - Brolga Retained earnings - Dance Net income Dividends Retained earnings - end BALANCE SHEET Cash Receivables Dividends Receivable Inventories Equipment-net Investment in Dance stock Patent Total assets Accounts payable Dividends Payable Other Debt Common stock Retained earnings Total equities Noncontrolling interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Brolga CORPORATION AND SUBSIDIARY CONSOLIDATION WORKSHEET FOR THE YEAR ENDED DECEMBER 31, 2005 | 70% | Adjustments & Eliminations | Brolga | Dance | Debits Credits | Consolidated | | | | 90,000 | 35,000 | 1,000 | | 2,300 | | (40,000) | (20,000) | | | (6,000) | (2,000) | | (24,500) | (8,000) | | | 22,800 | 5,000 | | | 25,000 | | | 12,000 | 22,800 | 5,000 | (10,000) | (3,000) | | | 37,800 | 14,000 | | | 10,350 | 1,500 | 1500 | 2,700 | 1,050 | | 12,000 | 6,000 | 41,000 | 23,500 | 28,200 | | | | | | 94,100 | 33,700 | 6,300 | 2,200 | | 1,500 | 10,000 | 1,000 | 40,000 | 15,000 | 37,800 | 14,000 | 94,100 | 33,700 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |