PROBLEM 616 Complete Equity with Downstream Sales LO 6

Pruitt Corporation owns 90% of the common stock of Sedbrook Company. The stock was purchased for $540,000 on January 1, 2017, when Sedbrook Company's retained earnings were $100,000. Preclosing trial balances for the two companies at December 31, 2021, are presented here:

Pruitt Corporation Sedbrook Company

Cash $ 83,000 $ 80,000

Accounts Receivable (net) 213,000 112,500

Inventory 1/1 150,000 110,000

Investment in Sedbrook Co. 568,250

Other Assets 500,000 400,000

Dividends Declared 100,000 30,000

Purchases 850,000 350,000

Other Expenses 180,000 137,500

$2,644,250 $1,220,000

Accounts Payable $ 70,000 $ 30,000

Other Liabilities 75,000 40,000

Common Stock 800,000 500,000

Retained Earnings, 1/1 532,000 120,000

Sales 1,100,000 530,000

Equity in Subsidiary Income 67,250

$2,644,250 $1,220,000

Ending Inventory $200,000 $120,000

The January 1, 2021, inventory of Sedbrook Company includes $30,000 of profit recorded by Pruitt Corporation on 2020 sales. During 2021, Pruitt Corporation made intercompany sales of $200,000 with a markup of 25% on cost. The ending inventory of Sedbrook Company includes goods purchased in 2021 from Pruitt for $50,000. Pruitt Corporation uses the complete equity method to record its investment in Sedbrook Company.

a)Prepare the consolidated statements workpaper for the year ended December 31, 2021.

b)Calculate consolidated retained earnings on December 31, 2021, using the analytical or taccount approach.