Question
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
- 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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