Par Corporation acquired a 70 percent interest in Sul Corporation's outstanding voting common stockon January 1, 2011, for $490,000 cash. The stockholders' equity (book value) of Sul on this date consistedof $500,000 capital stock and $100,000 retained earnings. The differences between the fair valueof Sul and the book value of Sul were assigned $5,000 to Sul's undervalued inventory, $14,000 to undervalued buildings, $21,000 to undervalued equipment, and $40,000 to previously unrecorded patents. Any remaining excess is goodwill. The undervalued inventory items were sold during 2011, and the undervalued buildings andequipment had remaining useful lives of seven years and three years, respectively. The patents have a 40-year life. Depreciation is straight line.At December 31, 2011, Sul's accounts payable include $10,000 owed to Par. This $10,000account payable is due on January 15, 2012. Separate financial statements for Par and Sul at 31 Dec- 2011 are summarized as follows (in thousands):
Par Corporation acquired a 70 percent interest in Sul Corporation's outstanding voting common stockon January 1, 2011, for $490,000 cash. The stockholders' equity (book value) of Sul on this date consistedof $500,000 capital stock and $100,000 retained earnings. The differences between the fair valueof Sul and the book value of Sul were assigned $5,000 to Sul's undervalued inventory, $14,000 to undervalued buildings, $21,000 to undervalued equipment, and $40,000 to previously unrecorded patents. Any remaining excess is goodwill. The undervalued inventory items were sold during 2011, and the undervalued buildings andequipment had remaining useful lives of seven years and three years, respectively. The patents have a 40-year life. Depreciation is straight line.At December 31, 2011, Sul's accounts payable include $10,000 owed to Par. This $10,000account payable is due on January 15, 2012. Separate financial statements for Par and Sul at 31 Dec- 2011 are summarized as follows (in thousands):
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter13: Investments And Long-term Receivables
Section: Chapter Questions
Problem 8MC
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Transcribed Image Text:Par Corporation acquired a 70 percent interest in Sul Corporation's outstanding voting
common stockon January 1, 2011, for $490,000 cash. The stockholders' equity (book
value) of Sul on this date consistedof $500,000 capital stock and $100,000 retained
earnings.
The differences between the fair valueof Sul and the book value of Sul were assigned
$5,000 to Sul's undervalued inventory, $14,000 to undervalued buildings, $21,000 to
undervalued equipment, and $40,000 to previously unrecorded patents. Any remaining
excess is goodwill. The undervalued inventory items were sold during 2011, and the
undervalued buildings andequipment had remaining useful lives of seven years and three
years, respectively. The patents have a 40-year life. Depreciation is straight line.At
December 31, 2011, Sul's accounts payable include $10,000 owed to Par. This
$10,000account payable is due on January 15, 2012. Separate financial statements for Par
and Sul at 31 Dec- 2011 are summarized as follows (in thousands):
Combined Income and Retained Earnings
Statements for the Year Ended December 31
Sales
Income from Sul
Cost of sales
Depreciation expense
Other expenses
Net income
Add: Retained earnings January 1
Deduct: Dividends
Retained earnings December 31
Balance Sheet at December 31
Cash
Accounts receivable net
Dividends receivable
Inventories
Other current assets
Land
Buildings net
Equipment-net
Investment in Sul
Total assets
Accounts payable
Dividends payable
Other liabilities
Capital stock, $10 par
Retained earnings
Total equities
Par
$ 800
59.5
(300)
(154)
(160)
245.5
300
(200)
$345.5
$ 86
100
14
150
70
50
140
570
514.5
$1,694.5
$ 200
100
49
1,000
345.5
$1,694.5
Sul
$700
(400)
(60)
(140)
100
100
(50)
$150
$60
70
100
30
100
160
330
$850
$85
20
95
500
150
$850
REQUIRED: Prepare consolidation workpapers for Par Corporation and
Subsidiary for the year endedDecember 31, 2011. Use an unamortized excess
account.
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