Lat22
Puter Corporation acquired a 90% interest in Surry Corporation in 20X4 in a pooling of
interests business combination. The pooling was correctly recorded by Puter on the date
of consummation. Financial statements for Puter and Surry corporations at and for the
year ended December 31, 20X7 are summarized as follows:
Puter
Surry
$300,000
$100,000
Combined Income and Retained Earnings Statements
for the Year Ended December 31, 20X7
Sales
Income from Surry
Interest income
50,300
-
-
4,000
(140,000)
(45,000)
Depreciation expense
(15,000)
(5,000)
Operating expense
(20,000)
(4,000)
Interest expense
(10,000)
Cost of sales
Net income
-
165,300
50,000
Add : Beginning retained earnings
114,600
35,000
Deduct : Dividends
(60,000)
(20,000)
Retained earnings December 31, 20X7
$219,900
$ 50,000
$ 90,000
$ 17,000
110,000
35,000
-
2,500
Balance Sheet at December 31, 20X7
Cash
Accounts receivable-net
Interest receivable
Inventories
50,000
30,000
Land
70,000
15,000
Buildings-net
140,000
50,000
Equipment-net
160,000
90,000
Investment in Surry
174,900
Investment in Puter bonds
-
Total assets
$794,900
45,500
$285,000
Accounts payable
$120,000
150,000
5,000
42,000
10% bonds payable
100,000
$210,000
Capital stock, $10 par
300,000
100,000
50,000
35,000
219,900
65,000
$794,900
$285,000
Interest payable
Additional paid-in capital
Retained earnings
Total equities
Additional Information
1. Surry purchased inventory items from Puter during 20X6 and 20X7 as
follows:
Sales
Cost of sales
Gross Profit
Unsold December 31
20X6
$30,000
$20,000
$10,000
$15,000
20X7
40,000
25,000
15,000
16,000
2. Puter paid Surry $20,000 on January 5, 20X6 for equipment that had a book
value of $12,000 on Surry’s books and a four-year remaining useful life.
Straight-line depreciation is used.
3. Surry paid $44,000 for $50,000 par of Puter’s 10% bonds on July 1, 20X7.
Puter issued the bonds at par in 20X1 and the bonds mature on July 1, 20X9.
Interest payment dates are January 1 and July 1. Straight-line amortization is
used.
4. Puter uses the equity method to account for its interest in Surry.
Required : Prepare consolidated working papers for Puter Corporation and Subsidiary at
and for the year ended December 31, 20X7.