Exercise 1

Parrot Corporation acquired 80% of Hollow Co. on January 1, 2005 for $24,000 cash when Hollows stockholders equity consisted of $10,000 of Common Stock and $3,000 of Retained Earnings. The difference between the price paid by Parrot and the underlying equity acquired in Hollow was allocated solely to a patent amortized over 10 years. The separate company statements for Parrot and Hollow appear in the first two columns of the partially completed consolidation working papers.

Required:

Complete the consolidation working papers for Parrot and Hollow for the year 2005.

Parrot Corporation and Subsidiary
Consolidated Balance Sheet Working Papers
at December 31, 2005
		Parrot	Hollow	Eliminations				Non- Cntl.	Consol- idated
					Debit		Credit
INCOME STATEMENT Sales	$	20,000	$15,000
Income of Hollow		3,680
Cost of Sales		( 9,200)	( 4,700)
Other Expenses		( 2,300)	( 4,000)
Net income		12,180	6,300
Retained Earnings 1/1		11,000	3,000
Add: Net income		12,180	6,300
Less: Dividends		( 3,000)	( 2,000)
Retained Earnings 12/31	$	20,180	$ 7,300
BALANCE SHEET Cash		2,000	1,900
Accounts Receivable-net		12,000	5,500
Inventories		14,000	8,000
Patent
Land		27,000	42,000
Equipment and Buildings-net		60,000	43,000
Investment in Hollow Co.		26,080
TOTAL ASSETS TOTAL ASSETS	$	141,080	$100,400 100
LIAB. & EQUITY Accounts payable		90,900	83,100
Capital Stock		30,000	10,000
Retained Earnings		20,180	7,300
1/1 Noncontrol. Interest
12/31 Noncontrol. Interest Earnings
TOTAL LIAB. & EQUITY	$	141,080	$100,400