Exercise 7

Egret Corporation paid $24,800 for an 80% interest in Plume Corporation on January 1, 2004, at which time Plumes stockholders equity consisted of $15,000 of Common Stock and $6,000 of Retained Earnings. The fair values of Plume Corporations assets and liabilities were identical to recorded book values when Egret acquired its 80% interest.

Plume Corporation reported net income of $4,000 and paid dividends of $2,000 during 2004.

Egret Corporation sold inventory items to Plume during 2004 and 2005 as follows:

				2004			2005
Egrets sales to Plume				$ 5,000			$ 6,000
Egrets cost of sales to Plume				3,000			3,500
Unrealized profit at year-end				1,000			1,500
The accounts payable of Plume include $1,500 owed to Egret for inventory purchases.
The following conversion to equity schedule provides information that may be helpful in completing the consolidation working papers for the year ended December 31, 2005.
			Retained Earnings			Investment in Plume					Income from Plume
Prior years:
Inventory profit	$		( 1,000 )			$( 1,000 )
Current year:
Inventory profit-2004	$					$ 1,000					$ 1,000
Inventory profit-2005	$					$( 1,500 )					$(1,500 )
Totals	$		( 1,000 )			$( 1,500 )					$( 500 )
Required: Financial statements of Egret and Plume appear in the first two columns of the partially completed working papers. Complete the consolidation working papers for Egret Corporation and Subsidiary for the year ended December 31, 2005.

Egret Corporation and Subsidiary
Consolidation Working Papers
for the year ended December 31, 2005
		Egret	Plume	Eliminations				Balance Sheet
					Debit		Credit
INCOME STATEMENT Sales	$	43,000	$20,000
Income from Plume Income from Sidd		7,200
Cost of Sales		( 22,000)	( 8,000)
Other expenses		( 12,200)	( 3,000)
Net income		16,000	9,000
Retained Earnings 1/1		10,000	8,000
Add: Net income		16,000	9,000
Less: Dividends		( 10,000)	( 5,000)
Retained Earnings 12/31	$	16,000	$12,000
BALANCE SHEET Cash		5,400	3,000
Accounts Receivable-net		14,000	10,000
Dividend Receivable		2,000
Inventories		18,000	8,000
Goodwill
Equipment and Buildings-net		24,000	31,000
Investment in Plume		29,600
TOTAL ASSETS TOTAL ASSETS	$	93,000	$52,000
LIAB. & EQUITY Accounts payable		17,500	12,500
Dividend payable		7,000	2,500
Other debt		12,500	10,000
Capital stock		40,000	15,000
Retained Earnings		16,000	12,000
1/1 Noncontrl. Interest
12/31 Noncontrl. Interest
LIAB. & EQUITY	$	93,000	$52,000