Swallow Corporation paid $62,000 to acquire 100% of Gully Corporation?s outstanding voting common stock at book value on May 1, 2006. The stockholders? equity of Gully on January 1, 2006 consisted of $40,000 Capital Stock and $20,000 Retained Earnings. Gully?s total dividends for 2006 were $6,000, paid equally on April 1 and October 1. Gully?s net income was earned uniformly throughout 2006. During 2006, Swallow made sales of $10,000 to Gully at a gross profit of $3,000. One-half of this merchandise was inventoried by Gully at year-end, and one-half of the 2006 intercompany sales were unpaid at year-end 2006. Swallow sold equipment with a ten-year remaining useful life to Gully at a $2,000 gain on December 31, 2006. The straight-line depreciation method is used. Financial statements of Swallow and Gully Corporations for 2006 appear in the first two columns of the partially completed consolidation working papers.

Test Problem # 4 | (in thousands) | INCOME STATEMENT | Sales | Income from Gully Gain on Sale of Equipment | Cost of Sales | Depreciation expense | Other Expenses | | | | Noncontrolling interest | Net income | RETAINED EARNINGS | Retained earnings - Swallow | Retained earnings - Gully | Net income | Dividends | | Retained earnings - end | BALANCE SHEET | Receivables - net | Inventories Other Assets | Land | Buildings - net | Equipment - net | Investment in Gully | | | Total assets | Accounts payable | Other Debt | Common Stock | Retained earnings | Total equities | Noncontrolling interest Swallow CORPORATION AND SUBSIDIARY CONSOLIDATION WORKSHEET FOR THE YEAR ENDED DECEMBER 31, 2006 | | Adjustments & Eliminations | Swallow | Gully | Debits Credits | Consolidated | | | | 80,000 | 40,000 | 6,500 2,000 | | (40,000) | (15,000) | (11,000) | (4,000) | (12,500) | (6,000) | | | | | | | | 25,000 | 15,000 | | | 60,000 | | | 20,000 | 25,000 | 15,000 | (10,000) | (6,000) | | | 75,000 | 29,000 | | | 19,000 | 16,000 | 10,000 8,000 10500 | 14,000 | 5,000 | 5,000 | 20,000 | 15,000 | 40,000 | 22,000 | 65,500 | | | | | | 170,000 | 80,000 | 16,000 | 10,000 | 19,000 | 1,000 | 60,000 | 40,000 | 75,000 | 29,000 | 170,000 | 80,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Test Problem # 4 | (in thousands) | INCOME STATEMENT | Sales | Income from Gully Gain on Sale of Equipment | Cost of Sales | Depreciation expense | Other Expenses | | | | Noncontrolling interest | Net income | RETAINED EARNINGS | Retained earnings - Swallow | Retained earnings - Gully | Net income | Dividends | | Retained earnings - end | BALANCE SHEET | Receivables - net | Inventories Other Assets | Land | Buildings - net | Equipment - net | Investment in Gully | | | Total assets | Accounts payable | Other Debt | Common Stock | Retained earnings | Total equities | Noncontrolling interest Swallow CORPORATION AND SUBSIDIARY CONSOLIDATION WORKSHEET FOR THE YEAR ENDED DECEMBER 31, 2006 | | Adjustments & Eliminations | Swallow | Gully | Debits Credits | Consolidated | | | | 80,000 | 40,000 | 6,500 2,000 | | (40,000) | (15,000) | (11,000) | (4,000) | (12,500) | (6,000) | | | | | | | | 25,000 | 15,000 | | | 60,000 | | | 20,000 | 25,000 | 15,000 | (10,000) | (6,000) | | | 75,000 | 29,000 | | | 19,000 | 16,000 | 10,000 8,000 10500 | 14,000 | 5,000 | 5,000 | 20,000 | 15,000 | 40,000 | 22,000 | 65,500 | | | | | | 170,000 | 80,000 | 16,000 | 10,000 | 19,000 | 1,000 | 60,000 | 40,000 | 75,000 | 29,000 | 170,000 | 80,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |