Question
On January 1, 2015, Pledge Corporation purchased 90% of the outstanding common stock of Strom Corporation for $90,000. At that time, Stroms stockholders equity consisted
On January 1, 2015, Pledge Corporation purchased 90% of the outstanding common stock of Strom Corporation for $90,000. At that time, Stroms stockholders equity consisted of common stock, $60,000; other contributed capital, $10,000; and retained earnings, $12,500. Assume that any difference between book value of equity and the value implied by the purchase price is Goodwill. On December 31, 2015, the two companies trial balances were as follows:
| Pledge Ltd | Strom Ltd |
Cash | $ 32,500.00 | $ 17,500.00 |
Accounts Receivable | $ 20,000.00 | $ 15,000.00 |
Inventory | $ 12,500.00 | $ 7,500.00 |
Investment in Sid Corporation | $ 92,250.00 |
|
Plant and Equipment | $ 55,000.00 | $ 42,500.00 |
Land | $ 24,250.00 | $ 22,500.00 |
Dividends Declared | $ 10,000.00 | $ 7,500.00 |
Cost of Goods Sold | $ 75,000.00 | $ 30,000.00 |
Operating Expenses | $ 17,500.00 | $ 7,500.00 |
Total Debits | $ 339,000.00 | $ 150,000.00 |
Accounts Payable | $ 10,000.00 | $ 7,500.00 |
Other Liabilities | $ 7,500.00 | $ 12,500.00 |
Common Stock, par value $10 | $ 100,000.00 | $ 60,000.00 |
Other Contributed Capital | $ 35,000.00 | $ 10,000.00 |
Retained Earnings, 1/1 | $ 27,500.00 | $ 12,500.00 |
Sales | $ 150,000.00 | $ 47,500.00 |
Equity in subsidiary Income | $ 9,000.00 |
|
Total Credits | $ 339,000.00 | $ 150,000.00 |
Required:
A. Prepare a consolidated statements work paper on December 31, 2015.
Note:* Accounts payable of Pledge Ltd includes $5,000 payable to Strom Ltd.
B. Prepare a consolidated statements work paper on December 31, 2016, assuming trial balances for Pledge and Strom on that date were:
| Pledge Ltd | Strom Ltd |
Cash | $ 35,000.00 | $ 10,000.00 |
Accounts Receivable | $ 30,000.00 | $ 17,500.00 |
Inventory | $ 20,000.00 | $ 15,000.00 |
Investment in Strom Corporation | $ 96,750.00 |
|
Plant and Equipment | $ 62,500.00 | $ 45,000.00 |
Land | $ 24,250.00 | $ 22,500.00 |
Dividends Declared | $ 10,000.00 | $ 7,500.00 |
Cost of Goods Sold | $ 80,000.00 | $ 32,500.00 |
Operating Expenses | $ 17,500.00 | $ 10,000.00 |
Total Debits | $ 376,000.00 | $ 160,000.00 |
Accounts Payable | $ 8,250.00 | $ 8,000.00 |
Other Liabilities | $ 7,500.00 | $ 12,000.00 |
Common Stock, par value $10 | $ 100,000.00 | $ 60,000.00 |
Other Contributed Capital | $ 35,000.00 | $ 10,000.00 |
Retained Earnings, 1/1 | $ 84,000.00 | $ 15,000.00 |
Sales | $ 130,000.00 | $ 55,000.00 |
Equity in Subsidiary Income | $ 11,250.00 |
|
Total Credits | $ 376,000.00 | $ 160,000.00 |
Note: Accounts receivable of Strom Ltd includes $ 2,500 due to Pledge ltd.
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