P 4-2 Workpapers and financial statements in year of acquisitionPop 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): PopSonCombined Income and Retained Earnings Statements for the Year Ended December 31  Sales$1,240$400Income from Son42—Cost of goods sold(800)(260)Operating expenses  (308)  (80) Net income17460Add: Retained earnings January 126044Deduct: Dividends(120)(40) Retained earnings December 31$ 314$ 64Balance Sheet at December 31  Cash$ 182$ 60Receivables—net240120Inventories9680Plant and equipment—net480140Investment in Son196 — Total assets$1,194$400Accounts payable$ 120$ 72Other liabilities8048Capital stock, $10 par600200Other paid-in capital8016Retained earnings31464 Total equities$1,194$400RequiredPrepare consolidation workpapers for Pop Corporation and Subsidiary for 2016.Prepare a consolidated income statement and a consolidated balance sheet for Pop Corporation and Subsidiary.

Question
Asked Dec 3, 2019
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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

    240

    120

    Inventories

    96

    80

    Plant and equipment—net

    480

    140

    Investment in Son

    196

     —

     Total assets

    $1,194

    $400

    Accounts payable

    $ 120

    $ 72

    Other liabilities

    80

    48

    Capital stock, $10 par

    600

    200

    Other paid-in capital

    80

    16

    Retained earnings

    314

    64

     Total equities

    $1,194

    $400

Required

  1. Prepare consolidation workpapers for Pop Corporation and Subsidiary for 2016.

  2. Prepare a consolidated income statement and a consolidated balance sheet for Pop Corporation and Subsidiary.

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Expert Answer

Step 1
  1. Prepare the Consolidated work papers for Pop Corporation and subsidiary for the year ended December 31, 2016:
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Consolidated workpaper of pop corporation and subs idary For the year ended December 31, 2016 P corporation Scorporation Adjustments Eliminations Cons olidated statement $1,240,000 Particulars $400,000 $1,640,000 Sales $42,000 Inc ome from S corpora tion Cost of goods sold Opera ting expenses $42,000 -S800,000 -$308.000 -$260,000 -S80.000 -$1.060.000 -5388.000 $192,000 -S18.000 $174,000 Consolidated net income Non controlling share Controlling share Opening re taine d earnings Dividends Retained eamings $18,000 $174,000 S60,000 $44,000 $260.000 $44,000 -$40,000 S64,000 $260.000 $40,000 -$120,000 $314.000 -$120.000 $314.000 S60,000| $120.000 $242.000 $360.000 $176.000 S620.000 Cash Receivables Inventory Plant and equipment Investment in S corporation $182.000 $240,000 S96,000 S80,000 $140.000 $480.000 $196.000 S1,194,000 $196,000 S400,000 $1.398.000 Accounts payable Other liabilities Capital stock Other paid up capital Retained eamings Non-controlling interest on Jamary 1 Non-controlling interest on December 31 $120,000 S80,000 S600,000 S72,000 $48,000 $200,000 $16,000 $64.000 $400,000| $192.000 S128,000 S600,000 S80,000 $314.000 S78,000 $200,000 $16,000 S80,000 $314.000 S1,194,000 S78,000 $6.000 $6.000 S320,000 S1,398,000 S320,000

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Step 2

Workings:

Non-controlling share:

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Non-controlling = Net income of S corporation x Shares in profit share 30 = S60, 000 x- 100 = S18,000

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Step 3

Compute the non-controlling interest on 1st J...

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Non-controlling =Equity capital x Shares in profit share 30 = S260, 000 x 100 = S78, 000

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