P 5-7 Consolidation workpapers (upstream sales, noncontrolling interest) Pal Corporation purchased a 90 percent interest in Sal Corporation on December 31, 2010, for $2,700,000 cash, when Sal had capital stock of $2,000,000 and retained earnings of $500,000. All Sal's assets and liabilities were recorded at fair values when Pal acquired its interest. The excess of fair value over book value is due to previously unrecorded patents and is being amortized over a 10-year period. The Pal-Sal affiliation is a vertically integrated merchandising operation, with Sal selling all of its output to Pal Corporation at 140 percent of its cost. Pal sells the merchandise acquired from Sal at 150 percent of its purchase price from Sal. All of Pals December 31, 2011, and Decem- ber 31, 2012, inventories of $280,000 and $420,000, respectively, were acquired from Sal. Sals December 31, 2011, and December 31, 2012, inventories were $800,000 each. Pal's accounts payable at December 31, 2012, includes $100,000 owed to Sal from 2012 purchases. Comparative financial statements for Pal Corporation and Sal Corporation at and for the year ended December 31, 2012, are as follows (in thousands): Pal Sal $5,600 $8,190 819 (5,460) (1,544) 2.005 1,200 (1,000) $2,205 (4,000) (600) 1,000 700 (500) $1,200 Combined Income and Retained Earnings Statement for the Year Ended December 31, 2012 Sales Income from Sal Cost of sales Other expenses Net income Add: Beginning retained earnings Deduct: Dividends Retained earnings December 31, 2012 Balance Sheet at December 31, 2012 Cash Inventory Other current assets Plant assets-net Investment in Sal Total assets Current liabilities Capital stock Retained earnings Total equities $ 500 800 200 3,000 $ 753 420 600 3,000 3,132 $7,905 $1,700 4,000 2,205 $7,905 $4,500 $1,300 2,000 1,200 $4,500 REQUIRED: Prepare consolidation workpapers for Pal Corporation and Subsidiary for the year ended December 31, 2012. P 5-7 POL CORPORATION AND SUBSIDIARY CONSOLIDATION WORKSHEET FOR THE YEAR ENDED DECEMBER 31, 2012 90% Adjustments & Eliminatio | Consolidated | Pol San Debits Credits Statements 5,600.0 INCOME STATEMENT Sales Income from San Cost of sales 1 8,190.0 819.0 | (5,460.01 13,790.0 819.01 (9,460.0) | (4,000.0) (1,544.0) (600.0) | (2,144.0) 3,005.0 0.0 3,005.0 2,005.0 1,000.0 Other expenses Consolidated NI Noncontrolling int. share Controlling share RETAINED EARNINGS Retained earnings beg Controlling share Dividends 1,200.0 2,005.01 (1,000.0) 700.0 1,000.0 | (500.0) 1,900.0 3,005.01 (1,500.0) | 2,205.0 1,200.0 3,405.0 Retained earnings end BALANCE SHEET Cash Inventory Other current assets Plant assets-net Investment in San 753.01 420.01 600.0 3,000.0 3,132.0 | 500.0 800.0 200.0 | 3,000.0 1,253.01 1,220.01 800.0 6,000.0 3,132.01 Patents Total assets Current liabilities Capital stock Retained earnings Total equities Noncontrollong interest 7,905.0 1,700.0 4,000.00 2,205.0 7,905.0 4,500.0 1,300.0 2,000.0 1,200.0 4,500.0 0.0 12,405.0 3,000.0 6,000.0 3,405.01 0.0 12,405.0 0.0 0.0
