Exercise 2

Stork Corporation paid $15,700 for a 90% interest in Swamp Corporation on January 1, 2004, when Swamp stockholders equity consisted of $10,000 Capital Stock and $3,000 of Retained Earnings. The excess cost over book value was attributable to goodwill.

Additional information:
1.	Stork sells merchandise to Swamp at 120% of Storks cost. During 2004, Storks sales to Swamp were $4,800, of which half of the merchandise remained in Swamps inventory at December 31, 2004. During 2005, Storks sales to Swamp were $6,000 of which 60% remained in Swamps inventory at December 31, 2005. At year-end 2005 Swamp owed Stork $1,500 for the inventory purchased during 2005.
2.	Stork Corporation sold equipment with a book value of $2,000 and a remaining useful life of four years and no salvage value to Swamp Corporation on January 1, 2005 for $2,800.
3.	Separate company financial statements for Stork Corporation and Subsidiary at December 31, 2005 are summarized in the first two columns of the consolidation working papers.
4.	Helpful hint: Stork's investment in Swamp account balance at December 31, 2004 consisted of the following:
	Investment cost $ 15,700
	Equity in Swamps income for 2004 3,600
	Less: Unrealized inventory profit ( 400)
	Less: Dividends received from Swamp ( 1,800)
	Investment in Swamp, December 31, 2004 $ 17,100
Required:
Complete the working papers to consolidate the financial statements of Stork Corporation and subsidiary for the year ended December 31, 2005.

Stork Corporation and Subsidiary
Consolidation Working Papers
at December 31, 2005
		Stork	Swamp	Eliminations				Non- Cntrl.	Balance Sheet
					Debit		Credit
INCOME STATEMENT Sales	$	60,000	$14,000
Income from Swamp		4,500
Gain on equipment sale		800
Cost of Sales		( 26,000)	( 4,400)
Other Expenses		( 28,000)	( 3,600)
Net income		11,300	6,000
Retained Earnings 1/1		9,500	5,000
Add: Net income		11,300	6,000
Dividends		( 7,000)	( 2,000)
Retained Earnings 12/31	$	13,800	$ 9,000
BALANCE SHEET Cash		6,000	3,000
Receivables		7,000	4,000
Inventories		10,000	4,500
Equipment-net		24,000	9,000
Land		4,000	3,500
Investment in Swamp		19,800
Goodwill
TOTAL ASSETS	$	70,800	$24,000
LIAB. & EQUITY Accounts payable		7,000	5,000
Capital Stock		50,000	10,000
Retained Earnings		13,800	9,000
1/1 Noncontrl. Interest
12/31 Noncontrl. Interest
TOTAL LIAB. & EQUITY	$	70,800	$24,000