Prepare consolidated income statements with and without fair value/book value differentials
Summary income statement information for Pas Corporation and its 70 percent owned subsidiary, Sit, for the year 2012 is as follows (in thousands):
|
Pas |
Sit |
|
|
Sales |
$2,000 |
$ 800 |
|
Income from Sit |
98 |
— |
|
Cost of sales |
(1,200) |
(400) |
|
Depreciation expense |
(100) |
(80) |
|
Other expenses |
(398) |
(180) |
|
Net income |
$ 400 |
$ 140 |
REQUIRED:
1. Assume that Pas acquired its 70 percent interest in Sit at book value on January 1, 2011, when the fair value of Sits’ assets and liabilities were equal to recorded book values. There were no intercompany transactions during 2011 and 2012. Prepare a consolidated income statement for Pas Corporation and Subsidiary for 2012.
2. Assume that Pas acquired its 70 percent interest in Sit on January 1, 2011, for $280,000. $60,000 was allocated to a reduction of overvalued equipment with a five year remaining useful life and the remainder was allocated to goodwill. Sit’s book value was $320,000. There were no intercompany transactions during 2011 and 2012. Prepare a consolidated income statement for Pas Corporation and Subsidiary for 2012.