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Workpapers (year of adquisicion, fair value/book value differentials, intercompanu balances) Pik Corporation acquired 80 percent of Sel Corporations common stock on January 1, 2011, for

  1. Workpapers (year of adquisicion, fair value/book value differentials, intercompanu balances) Pik Corporation acquired 80 percent of Sel Corporations common stock on January 1, 2011, for $210,000 cash. The stockholders equity of Sel at this time consisted of $150,000 capital stock and

$50,000 retained earnings. The difference between the fair value of Sel and the underlying equity acquired in Sel was due to a $12,500 undervaluation of Sels inventory, a $25,000 undervaluation of Sels equipment, and goodwill. The undervalued inventory items were sold by Sel during 2011, and the undervalued equipment had a remaining useful life of five years. Straight-line depreciation is used. Sel owed Pik $4,000 on accounts payable at December 31, 2011. The separate financial statements of Pik and Sel Corporations at and for the year ended December 31, 2011, are as follows (in thousands):

Pik Sel

Combined Income and Retained Earnings

Statements for the Year Ended December 31

Sales $200 $110

Income from Sel 18

Cost of sales (80) (40)

Depreciation expense (40) (20)

Other expenses (25.5) (10)

Net income 72.5 40

Add: Retained earnings January 1 75 50

Deduct: Dividends (40) (20)

Retained earnings December 31 $107.5 $ 70

Balance Sheet at December 31

Cash $ 29.5 $ 30

Trade receivablesnet 28 40

Dividends receivable 8

Inventories 40 30

Land 15 30

Buildingsnet 65 70

Equipmentnet 200 100

Investment in Sel 212

Total assets $597.5 $300

Acounts payable $ 40 $ 50

Dividends payable 100 10

Other liabilities 50 20

Capital stock, $10 par 300 150

Retained earnings 107.5 70

Total equities $597.5 $300

Prepare consolidation workpapers for Pik Corporation and Sel at and for the year ended

December 31, 2011.

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