Lat14
Palm Corporation acquired 70% of the outstanding voting stock of Sail Corporation for
$45,500 cash on January 1, 20X8 when Sail’s stockholders’ equity was $65,000. All the
assets and liabilities of Sail were stated at their fair values when Palm acquired its 70%
interest.
Financial statements of the two corporations at and of the year ended December
31, 20X8 are summarized as follows:
Palm
Sail
$310,000
$100,000
Combined Income and Retained Earnings Statements
for the Year Ended December 31, 20X8
Sales
Income from Sail
10,000
-
Cost of goods sold
(200,000)
(65,000)
Operating expenses
(77,000)
(20,000)
43,500
15,000
65,000
11,000
(30,000)
(10,000)
$ 78,500
$ 16,000
$ 45,500
$ 15,000
Receivable-net
60,000
30,000
Inventories
24,000
20,000
120,000
35,000
Net income
Add : Retained earnings January 1, 20X8
Deduct : Dividends
Retained earnings December 31, 20X8
Balance Sheet at December 31, 20X8
Cash
Plant and equipment-net
Investment in Sail
Total assets
49,000
-
$298,500
$100,000
$ 30,000
$ 18,000
20,000
12,000
Capital stock, $10 par
150,000
50,000
Other paid-in capital
20,000
4,000
Accounts payable
Other liabilities
Retained earnings
Total equities
78,500
16,000
$298,500
$100,000
Required
1. Prepare consolidation working papers for Palm Corporation and Subsidiary for
20X8.
2. Prepare a consolidated income statement for Palm Corporation and Subsidiary.