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From Advanced Accounting - Fifth Edition Debra C. and Paul K. PROBLEM 6-5 Intercompany Downstream Sales, Cost Method Pruitt Corporation owns 90% of the common

image text in transcribedimage text in transcribedFrom Advanced Accounting - Fifth Edition Debra C. and Paul K.

PROBLEM 6-5 Intercompany Downstream Sales, Cost Method Pruitt Corporation owns 90% of the common stock of Sedbrook Company. The stock was purchased for $625,500 on January 1, 2009, when Sedbrook Company's retained earnings were $95,000. Preclosing trial balances for the two companies at December 31, 2013, are pre- sented here: Pruilt Corporation Sedbrook Company Cash Accounts Receivable (net) Inventory 1 Investment in Sedbrook Co Other Assets Dividends Declared Purchases Other Expenses $ 96,000 135,000 132,000 90,800 243,300 165,000 625,500 550,000 110,000 935,000 198,000 $2,917,600 480,000 35,000 420,000 165,000 $1.463,000 Total $ 36,000 47,000 600,000 144,000 636,000 Accounts Pavable Other Liabilities Common Stock Retained Earnings (1/1) Sales Dividend Income $ 77,000 120,700 880,000 598,400 1,210,000 31,500 $2,917,600 Total $1.463,000 220,000 S 144,000 Ending Inventory 368 Chapter 6 Elimination of Unrealized Profit on Intercompany Sales of Inventory The January 1, 2013, inventory of Sedbrook Company includes $25,000 of profit recorded by Pruitt Corporation on 2012 sales. During 2013, Pruitt Corporation made intercompany sales of $250,000 with a miarkup of 20% on cost. The ending inventory of Sedbrook Company in- cludes goods purchased in 2013 from Pruitt for $60,000. Required: A. Prepare the consolidated statements workpaper for the year ended December 31, 2013 B. Calculate consolidated retained earnings on December 31, 2013, using the analytical or t-account approach

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