P7-3 Subsidiary purchases parent bonds The separate trial balance for Thanos SA and Merry SA, its 90 percent-owned subsidiary, for the year ended 2014 is as follows: Merry SA $600 400 25 700 800 1.400 Thanos SA $700 1,000 0 1,100 1,900 1,100 2.000 0 3,600 2,800 100 1,100 300 $15.700 1,400 460 Debits Cash Accounts receivable Interest receivable Inventory Land Equipment-net Building-net Investment in Thanos SA bonds Investment in Merry SA Cost of sales Interest expense Other expenses Dividends Total Credits Accounts payable Interest payable 10% bonds payable Common stock Retained Earnings Sales Gain on sale of land Gain on sale of equipment Interest income Total 2,400 700 100 $8.985 $1,300 50 1,000 5,000 3.380 4.800 $1,000 0 0 2,000 2.085 3.700 200 0 0 $8.985 0 100 70 $15.700 266 CHAPTER 7 ADDITIONAL INFORMATION 1. Thanos SA acquired Merry SA when the book value of its net identifiable assets equaled the fair value. 2. Intercompany merchandise sale during 2014 by Thanos SA to Merry SA was $800,000 while unrealized profit of $100,000 remained in the ending inventory. 3. Thanos SA purchased land from Merry SA with book value of $800,000 for $1,000,000 in 2014. Thanos SA holds the land until 2015. 4. Merry SA purchased equipment from Thanos SA for $700,000 on December 31, 2014. The gain from selling this equipment was $100,000. 5. On January 1, 2014, Merry SA purchased half of Thanos SA's 10 percent outstanding bonds that were originally issued at par for $440,000. The bonds will mature on January 1, 2017. The bonds paid interest every January 1 and July 1. REQUIRED: Prepare consolidation workpapers for Thanos SA and subsidiary for the year ended December 31, 2014