Intercompany Bond Holdings at Par, 90% Owned Subsidiary
Balance sheets for P Company and S Company on August 1, 2011, are as follows:
|
P Company |
S Company |
|
|
Cash |
$165,500 |
$106,000 |
|
Receivables |
366,000 |
126,000 |
|
Inventory |
261,000 |
108,000 |
|
Investment in bonds |
306,000 |
0 |
|
Investment in S Company stock |
586,500 |
0 |
|
Plant and equipment (net) |
573,000 |
320,000 |
|
Land |
200,000 |
300,000 |
|
Total |
$2,458,000 |
$960,000 |
|
Accounts payable |
$ 174,000 |
$ 58,000 |
|
Accnted expenses |
32,400 |
26,000 |
|
Bonds payable, 8% |
0 |
200,000 |
|
Common stock |
1,500,000 |
460,000 |
|
Other contributed capital |
260,000 |
60,000 |
|
Retained earnings |
491,600 |
156,000 |
|
Total |
$2,458,000 |
$960,000 |
Required:
Prepare a workpaper for a consolidated balance sheet for P Company and its subsidiary on August 1, 2011, taking into consideration the following:
- P Company acquired 90% of the outstanding common stock of S Company on August 1, 2011, for a cash payment of $586,500.
- Included in the Investment in Bonds account are $40,000 par value of S Company bonds payable that were purchased at par by P Company in 2002. The bonds pay interest on April 30 and October 31. S Company has appropriately accrued interest expense on August 1, 2011; P Company, however, inadvertently failed to accrue interest income on the S Company bonds.
- Included in P Company receivables is a $35,000 cash advance to S Company that was mailed on August 1, 2011. S Company had not yet received the advance at the time of the preparation of its August 1, 2011, balance sheet.
- Assume that any excess of book value over the value implied by purchase price is due to overvalued plant and equipment.