Exercise 1

Alarm Bird Inc. acquired an 85% interest in Clock Corporation on January 2, 2005 for $38,000 cash when Clock had Capital Stock of $15,000 and Retained Earnings of $25,000. Clocks assets and liabilities had book values equal to their fair values except for inventory that was undervalued by $2,000. Balance sheets for Alarm Bird and Clock on January 2, 2005, immediately after the business combination, are presented in the first two columns of the consolidated balance sheet working papers.

Alarm Bird Corporation and Subsidiary
Consolidated Balance Sheet Working Papers
at January 2, 2005
		Alarm Bird	Clock	Eliminations		Balance Sheet
				Debit	Credit
ASSETS Cash	$	68,000	$ 4,000
Accounts Receivable-net		75,000	9,000
Inventories		39,000	10,000
Plant assets-net		170,000	35,000
Investment in Clock		38,000
Total Assets	$	390,000	$58,000
EQUITIES Payables	$	120,000	$18,000
Capital stock		100,000	15,000
Retained Earnings		170,000	25,000
Minority Interest
TOTAL EQUITIES	$	390,000	$58,000

Required:

Complete the consolidation balance sheet working papers for Alarm Bird and subsidiary at January 1, 2005.

Please explain