Reconstruct workpaper (separate and consolidated income statements)
Pen Corporation acquired a 90 percent interest in Soo Corporation in a taxable transaction on January 1, 2011, for $900,000, when Soo had $500,000 capital stock and $400,000 retained earnings. The $90,000 excess cost over book value is due to goodwill. Pen and Soo are an affiliated group for tax purposes.
During 2011, Pen sold land to Soo at a $20,000 profit. Soo still holds the land. Soo paid dividends of $50,000. A flat 34 percent tax rate applies to Pen and Soo. Income statements for Pen and Soo, and a consolidated income statement for Pen and Subsidiary, are summarized as follows:
|
Pen |
Soo |
Consolidated |
|
|
Sales |
$ 800,000 |
$200,000 |
$1,000,000 |
|
Gain on sale of land |
20,000 |
— |
— |
|
Income from Soo |
36,430 |
— |
— |
|
Cost of sales |
(400,000) |
(75,000) |
(475,000) |
|
Other expenses |
(150,000) |
(30,000) |
(180,000) |
|
Income tax expense |
(85,000) |
(32,300) |
(117,300) |
|
Noncontrolling interest share |
— |
— |
(6,270) |
|
Net income |
$ 221,430 |
$ 62,700 |
$ 221,430 |
REQUIRED: Reconstruct all the workpaper entries needed to consolidate the financial statements of Pen Corporation and Subsidiary for 2011.