P8-23 Consolidation Worksheet--Year of Retirement (Effective Interest Method) LO 8-2

Purple Manufacturing purchased 60 percent of the ownership of Socks Corporation stock on January 1, 20X1, at underlying book value. At that date, the fair value of the noncontrolling interest was equal to 40 percent of the book value of Socks Corporation. Purple also purchased $50,000 of Socks bonds at par value on December 31, 20X3. Socks sold the 10-year bonds on January 1, 20X1, at 120; they have a stated interest rate of 12 percent. Interest is paid semiannually on June 30 and December 31. Assume Purple uses the fully adjusted equity method. On December 31, 20X1, Socks sold a building with a remaining life of 15 years to Purple for $30,000. Socks had purchased the building 10 years earlier for $40,000. It is being depreciated based on a 25-year expected life.

Trial balances for the two companies on December 31 20X3, are as follows:

	Purple Manufacturing										Socks Corporation
Item	Debit					Credit					Debit					Credit
Cash		$	68,000									$	55,000
Accounts Receivable			100,000										75,000
Inventory			120,000										110,000
Investment in Socks Bonds			50,000
Investment in Socks Stock			101,545
Depreciable Assets (net)			360,000										210,000
Interest Expense			20,000										20,884
Operating Expenses			302,200										150,000
Dividends Declared			40,000										10,000
Accounts Payable							$	94,200									$	52,000
Bonds Payable								200,000										200,000
Bond Premium																		31,413
Common Stock								300,000										100,000
Retained Earnings								145,123										47,471
Sales								400,000										200,000
Income from Socks Corp.								22,422
Total		$	1,161,745				$	1,161,745				$	630,884				$	630,884

a. Prepare a consolidation worksheet for 20X3 in good form.

b. Prepare a consolidated balance sheet, income statement, and statement of changes in retained earnings for 20X3.

E MANUFACTURING AND SUBSIDIA Consolidated Financial Statement Worksheet December 31, 20X3 CR Less: Interest Expense Income from Socks Corp. Consolidated Net Income NCI in Net Income Controlling Interest in Net Income Statement of Retained Earnings Beginning Balance Less: Dividends Declared Ending Balance Accounts Receivable Depreciable Assets (net) Investment in Socks Corp. Bonds Investment in Socks Corp. Stock Liabilities & Equity Accounts Payable NCI in NA of Socks Co. Total Liabilities & Equity b. Prepare a consolidated balance sheet, income statement, and statement of changes in retained earnings for 20X3. PURPLE MANUFACTURING AND SUBSIDIARY Consolidated Balance Sheet December 31, 20X3 Assets Total current assets Total Assets Liabilities Stockholders equity Controlling interest: Total controlling interest Total stockholders' equity Total Liabilities and Stockholders' Equity PURPLE MANUFACTURING AND SUBSIDIARY Consolidated Income Statement Year Ended December 31. 20X3 Total revenue Total expenses Consolidated net income Income to controlling interest PURPLE MANUFACTURING AND SUBSIDIARY Consolidated Statement of Retained Earnings Year Ended December 31. 20X3 Retained earnings, January 1, 20x3 Income to controlling interest, 20x3 Dividends declared, 20X3 Retained eamings, December 31, 20x3