P 5-6 Workpapers (noncontrolling interest, downstream sales, year after acquisition) Pay Corporation acquired a 75 percent interest in Sue Corporation for $1,200,000 on January 1, 2011, when Sue's equity consisted of $600,000 capital stock and $200,000 retained earnings. The fair values of Sue's assets and liabilities were equal to book values on this date, and goodwill is not amortized. Pay uses the equity method of accounting for Sue. During 2011, Pay sold inventory items to Sue for $320,000, and at December 31, 2011, Sue's inventory included items on which there were $40,000 unrealized profits. During 2012, Pay sold inventory items to Sue for $520,000, and at December 31, 2012, Sue's inventory included items on which there were $80,000 unrealized profits. On December 31, 2012, Sue owed Pay $60,000 on account for merchandise purchases. The financial statements of Pay and Sue Corporations at and for the year ended December 31, 2012, are summarized as follows (in thousands): Pay Sue $ 1,600 Combined Income and Retained Earnings Statements for the Year Ended December 31, 2012 Sales Income from Sue Cost of sales Operating expenses Net income Beginning retained earnings Deduct: Dividends Retained earnings December 31, 2012 $ 2,400 410 (1,080) (580) 1,150 730 (600) $ 1,280 (840) (160) 600 360 (200) $ 760 Pay Sue $ 120 400 320 200 400 560 Balance Sheet at December 31, 2012 Cash Accounts receivable Dividends receivable Inventories Land Buildings-net Equipment-net Investment in Sue Total assets Accounts payable Dividends payable Other liabilities Common stock, $10 par Retained earnings Total equities $ 340 660 60 240 320 920 800 1,540 $ 4,880 $ 900 280 620 1.800 1,280 $ 4.880 $2,000 $ 400 80 160 600 760 $2.000 REQUIRED: Prepare consolidation workpapers for Pay Corporation and Subsidiary for the year ended December 31, 2012. P 5-6 PAY CORPORATION AND SUBSIDIARY CONSOLIDATION WORKSHEET FOR THE YEAR ENDED DECEMBER 31, 2012 75% Adjustments & Elimination Consolidater Pay Sue Debits Credits Statements (in thousands) INCOME STATEMENT Sales Income from Sue Cost of sales 1,600.0 2,400.0 410.01 (1,080.0) 1 (840.0) 4,000.01 410.0 (1,920.0) 1 (740.0) 1,750.0 0.0 1,750.0 (580.0) (160.0) 1,150.0 600.0 Operating expenses Consolidated NI Noncontrolling int. share Controlling share RETAINED EARNINGS Retained earn-Pay Retained earn-Sue Controlling share Dividends 730.0 730.01 360.01 1,750.01 (800.0) 360.0 600.0 (200.0)| 1,150.0 (600.0) Retained earn 12/31 1,280.0 760.0 2,040.0 120.0 400.0 BALANCE SHEET Cash Accounts receivable Dividends receivable Inventories Land Buildings-net Equipment-net Investment in Sue 340.0 660.0 60.0 240.0 320.0 920.0 800.0 1,540.0 320.0 200.0 400.0 560.0 460.0 | 1,060.0 60.0 560.0 520.0 1,320.01 1,360.0 1,540.0 1 Goodwill Total assets Accounts payable Dividends payable Other liabilities Common stock - $10 par Retained earnings Total equities Noncontrolling interest 4,880.0 900.0 280.0 620.0 1,800.0 1,280.0 4,880.0 2,000.0 400.0 80.0 160.0 600.0 760.0 2,000.0 0.0 6,880.0 1,300.01 360.0 780.0 2,400.0 2,040.0 | 1 0.0 1 0,0 0.0 0.0 0.0 6,880.0
