Question
Pommu Corporation paid $78,000 for a 60% interest in Schtick Inc. on January 1, 2014, when Schtick's Capital Stock was $80,000 and its Retained Earnings
Pommu Corporation paid $78,000 for a 60% interest in Schtick Inc. on January 1, 2014, when Schtick's Capital Stock was $80,000 and its Retained Earnings $20,000. The fair values of Schtick's identifiable assets and liabilities were the same as the recorded book values on the acquisition date. Trial balances at the end of the year on December 31, 2014 are given below: Pommu Schtick Cash $4,500 $20,000 Accounts Receivable 24,000 30,000 Inventory 100,000 70,000 Investment in Schtick 78,000 Cost of Goods Sold 71,500 50,000 Operating Expenses 22,000 37,000 Dividends 15,000 10,000 $315,000 $217,000 Liabilities $47,000 $27,000 Capital stock, $10 par value 100,000 80,000 Additional Paid-in Capital 11,000 Retained Earnings 31,000 20,000 Sales Revenue 120,000 90,000 Dividend Income 6,000 $315,000 $217,000 During 2014, Pommu made only two journal entries with respect to its investment in Schtick. On January 1, 2014, it debited the Investment in Schtick account for $78,000 and on November 1, 2014, it credited Dividend Income for $6,000. Part 1: Prepare a consolidated income statement and a statement of retained earnings for Pommu and Subsidiary for the year ended December 31, 2014. Part 2: Prepare a consolidated balance sheet for Pommu and Subsidiary as of December 31, 2014.
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