PROBLEM 4.5 Consolidated Workpapor, Partially Owned SubsidiarySubsequent Years On January 1, 2017. Perez Company purchased 90% of the capital stock of Sanchez Company for $85,000. Sanchez Company had capital stock of $70,000 and retained earnings of $12,000 at that time. On December 31, 2021, the trial balances of the two companies were: Perez Sanchez Cash $ 13,000 $ 14,000 Accounts receivable 22.000 36,000 Inventory. 1/1 14,000 8,000 Advance to Sanchez Company 8,000 -O- Investment in Sanchez Company 85.000 Plant and equipment 50.000 44,000 Land 17.800 6.000 Dividends declared 10.000 12,000 Purchases 84.000 20.000 Other expense 10.000 16.000 Total debits $313,800 $156,000 Accounts payable 6,000 $ 6,000 Other liabilities 37.000 Advance from Perez Company 8,000 Capital stock 100.000 70,000 Retained eamings 50.000 30.000 Sales 110,000 42,000 Dividend income 10.800 Total Credits $313,800 $156.000 Inventorv. 12/31 $ 40.000 $ 15.000 Any difference between book value and the value implied by the purchase price relates to goodwill, Required: 1. What method is being used by Perez to account for its investment in Sanchez Company? How can you tell? 2. Prepare a workpaper for the preparation of consolidated financial statements on 12/31/21 Answer: 1. 2. Computation and Allocation of Difference between Implied and Book Value Acquired Parent Non- Entire Share Controlling Value 90% Share 10% 100% Purchase price and implied value 85,000 9,444 94,444 Less: Book value of equity acquired: 73.800 8.200 82.000 Difference between implied and book value Goodwill Balance *85,000/.90 Workpaper - Cost Method Perez Company and Subsidiary Consolidated Statements Workpaper For the Year Ended December 31, 2021 Eliminating Entries Perez Sanchez Compan Compan Noncontrolli Consolidated ng Interest Balance Dr. Cr. 110,000 42.000 10,800 120.800 42.000 Income Statement Sales Dividend Income Total Revenue Cost of Goods Sold Inventory 1/1 Purchases Available for Sale Inventory 12/31 Cost of Goods Sold Other Expenses Total Cost and Expense Net Income Noncontrolling Interest Net Income to Retained 14,000 8,000 84,000 20,000 98,000 28,000 40,000 15,000 58,000 13,000 10,000 16,000 68,000 29,000 52 800 13.000 1,300 1,300 (1,300) 53.700 52.800 13.000 10.800 50,000 Retained Earnings Retained Earnings 1/1 Perez Company Sanchez Company Net Income from above Dividends Declared Perez Company Sanchez Company Retained Earnings 12/31 30,000 13,000 52,800 10,800 1,300 53.700 (10,000) (12.000) 92.800 31,000 40,800 27,000 100 109,900 *($13,000 x .10) = $1,300 Complete the balance sheet! Perez Sanchez Compan Compan Eliminating Entries Dr. Cr. Noncontrol. Consolidate Interest d Balance Balance Sheet Cash Accounts Receivable Inventory 12/31 Advance to Sanchez Investment in Sanchez Difference b/w Implied & Book Plant and Equipment Land Goodwill Total 13,000 22.000 40,000 8,000 85,000 14,000 36,000 15,000 50,000 17,800 44,000 6.000 235,800 115,000 6.000 6,000 37,000 8,000 Accounts Payable Other Liabilities Advances from Perez Common Stock Perez Company Sanchez Company Retained Earnings from above Noncontrolling Interest 1/1 Noncontrolling Interest 12/31 100,000 70,000 92,800 31,000 40,800 27,000 11 244 109,900 100 11 244 11,344 11,344 1235,800 115.000 ** $9,444 + f($30,000 - $12,000) .10] = $11,244