A-2

P 4-5 Workpapers in year of acquisition (excess recorded for inventory, building, equipment, trademarks, and goodwill) Pam Corporation acquired a 70 percent interest in Sun Corporation’s outstanding voting common stock on January 1, 2016, for $980,000 cash. The stockholders’ equity (book value) of Sun on this date consisted of $1,000,000 capital stock and $200,000 retained earnings. The differences between the fair value of Sun and the book value of Sun were assigned $10,000 to Sun’s undervalued inventory, $28,000 to undervalued buildings, $42,000 to undervalued equipment, and $80,000 to previously unrecorded trademarks. Any remaining excess is goodwill. The undervalued inventory items were sold during 2016, and the undervalued buildings and equipment had remaining useful lives of seven years and three years, respectively. The trademarks have a 40-year life. Depreciation is straight line. At December 31, 2016, Sun’s accounts payable include $20,000 owed to Pam. This $20,000 account…

P 4-2 Workpapers and financial statements in year of acquisition Pop Corporation acquired 70 percent of the outstanding voting stock of Son Corporation for $182,000 cash on January 1, 2016, when Son’s stockholders’ equity was $260,000. All the assets and liabilities of Son were stated at fair values (equal to book values) when Pop acquired its 70 percent interest. Financial statements of the two corporations at and for the year ended December 31, 2016, are summarized as follows (in thousands):   Pop Son Combined Income and Retained Earnings Statements for the Year Ended December 31     Sales $1,240 $400 Income from Son 42 — Cost of goods sold (800) (260) Operating expenses   (308)   (80)  Net income 174 60 Add: Retained earnings January 1 260 44 Deduct: Dividends (120) (40)  Retained earnings December 31 $ 314 $ 64 Balance Sheet at December 31     Cash $ 182 $ 60 Receivables—net…