P 4-12 Workpapers (two years after acquisition, fair value/book differentials, adjustments) Pat Corporation acquired an 80 percent interest in Sci Corporation for $480,000 on January 1, 2011, when Sci's stockholders' equity consisted of $400,000 capital stock and $50,000 retained earnings. The excess fair value over book value acquired was assigned to plant assets that were undervalued by $100,000 and to goodwill. The undervalued plant assets had a four-year useful life. ADDITIONAL INFORMATION 1. Pat's account receivable includes $10,000 owed by Sci. 2. Sci mailed its check for $40,000 to Pat on December 30, 2012, in settlement of the advance. 3. A $20,000 dividend was declared by Sci on December 30, 2012, but was not recorded by Pat. 4. Financial statements for Pat and Sci Corporations for 2012 follow (in thousands): Pat Sci $600 Statements of Income and Retained Earnings for the Year Ended December 31 Sales Income from Sci Cost of sales Operating expenses Net Income Add: Retained earnings January 1 Less: Dividends Retained earnings December 31 $1,800 76 (1,200) (380) 296 244 (200) $ 340 (300) (180) 120 100 (40) $180 $ 30 40 120 Balance Sheet at December 31 Cash Accounts receivable-net Inventories Advance to Sci Other current assets Land Plant assets-net Investment in Sci Total assets $ 12 52 164 40 160 320 680 560 $1,988 10 60 460 $720 Pat Sci $ 48 Accounts payable Dividends payable Other liabilities Capital stock Retained earnings Total liabilities and stockholders' equity 200 1,400 340 $1,988 $ 30 20 90 400 180 $720 REQUIRED: Prepare consolidation workpapers for Pat Corporation and Subsidiary for 2012. PAT CORPORATION AND SUBSIDIARY P 4-12 CONSOLIDATION WORKING PAPERS FOR YEAR ENDED DECEMBER 31, 2012 80% | Adjustments & Eliminations Consolidated (in thousands) Pat Sci Debits Credits Statements INCOME STATEMENT Sales 1,800 600 2,400 Income from Sci 76 76 Cost of sales (1,200) (300) (1,500) Operating expenses (380) (180) (560) | Consolidated NI 416 Noncontrolling interest share 0 Controlling share of NI 296 120 416 RETAINED EARNINGS Retained earnings--Pat 244 244 Retained earnings--Sci 1001 100 Controlling share of NI 296 416 | Dividends (200) (40) (240) Retained earnings 12/31 340 180 520 BALANCE SHEET Cash 12 301 42 Receivables-net 52 401 92 Advance to Sci 40 40 Inventories 164 120 284 Other current assets 10 170 Land 320 60 Plant assets--net 680 460 1,140 | Investment in Sci 560 5601 1201 160 380 | 1,988 720 48 Dividends receivable Goodwill Total assets Accounts payable Dividends payable Other liabilities Capital stock Retained earnings Total equities Noncontrolling interest 1 0 0 2,708 78 20 290 1,800 520 1 0 1 301 20 90 400 180 720 200 1,400 340 1,988 li 0 2,708