Paulee Corporation paid $24,800 for an 80% interest in Sergio Corporation on January 1, 2015, at which time Sergio's stockholders' equity consisted of $15,000 of Common Stock and $6,000 of Retained Earnings. The fair values of Sergio Corporation's assets and liabilities were identical to reorded book values when Paulee acquired its 80% interest.

Sergio Corporation reported net income of $4,000 and paid dividends of $2,000 during 2015. Paulee Corporation sold inventory items to Sergio during 2015 and 2016 as follows:

	2015	2016
Paulee's sales to Sergio	$5,000	$6,000
Paulee's cost of sales to Serigo	3,000	3,500
Unrealized profit at year-end	1,000	1,500

At December 31, 2016, the accounts payable of Sergio include $1,500 owed to Paulee for inventory purchases.

Financial statements of Paulee and Sergio appear in the first two columns of the partially completed working papers.

REQUIRED:

1. Show all preliminary computations (5 pts)

2. Complete the consolidation working papers for Paulee Corporation and Subsidiary for the year ended December 31, 2016 (13 pts)

3. Give all eliminating journal entires (6 pts)

	Paulee	Sergio	Eliminations- Debit	Eliminations- Credit	Non-Cont. Interest	Consolidated
INCOME STATEMENT Sales	$43,000	$20,000
Income from Sergio	6,700
Cost of Sales	(22,000)	(8,000)
Other expenses Non-controlling interest Expense	(12,200)	(3,000)
Net Income	15,500	9,000
RETAINED EARNINGS Retained Earnings 1/1	9,000	8,000
Add: Net Income	15,500	9,000
Less: Dividends	(10,000)	(5,000)
Retained Earnings 12/31	$14,500	$12,000
BALANCE SHEET Cash	5,400	3,000
Accounts Receivable- Net	14,000	10,000
Dividend Receivable	2,000
Inventories	18,000	8,000
Goodwill
Equipment and Buildings- Net	24,000	31,000
Investment in Sergio	28,100
TOTAL ASSETS	$91,500	$52,000
LIAB. & EQUITY Accounts payable	17,500	12,500
Dividend payable	7,000	2,500
Other Debt	12,500	10,000
Capital Stock	40,000	15,000
Retained Earnings	14,500	12,000
1/1 Noncontrl Interest
12/31 Noncontrl Interest
LIAB. & EQUITY	$91,500	$52,000