Workpapers (constructive retirement of bonds, intercompany sales)
Financial statements for Pad Corporation and its 75 percent owned subsidiary, Sum Corporation, for
2011 are summarized as follows (in thousands):
|
Pad |
Sum |
|
|
Combined Income and Retained Earnings Statement |
||
|
for the Year Ended December 31, 2011 |
||
|
Sales |
$1,260 |
$1,000 |
|
Gain on land |
20 |
— |
|
Gain on building |
40 |
— |
|
Income from Sum |
104 |
— |
|
Cost of goods sold |
(700) |
(600) |
|
Depreciation expense |
(152) |
(80) |
|
Interest expense |
(40) |
— |
|
Other expenses |
(92 |
(120 ) |
|
Net income |
440 |
200 |
|
Add: Retained earnings, January 1 |
300 |
200 |
|
Deduct: Dividends |
(320 |
(160 ) |
|
Retained earnings, December 31 |
$ 420 |
$ 240 |
|
Balance Sheet at December 31, 2011 |
||
|
Cash |
$ 54 |
$ 162 |
|
Bond interest receivable |
— |
10 |
|
Other receivables—net |
80 |
60 |
|
Inventories |
160 |
100 |
|
Land |
180 |
140 |
|
Buildings—net |
300 |
360 |
|
Equipment—net |
280 |
180 |
|
Investment in Sum |
686 |
— |
|
Investment in Pad Bonds |
— |
188 |
|
Total assets |
$1,740 |
$1,200 |
|
Accounts payable |
$ 100 |
$ 160 |
|
Bond interest payable |
20 |
— |
|
10% bonds payable |
400 |
— |
|
Common stock |
800 |
800 |
|
Retained earnings |
420 |
240 |
|
Total equities |
$1,740 |
$1,200 |
Pad acquired its interest in Sum at book value during 2008, when the fair values of Sum’s assets and liabilities were equal to their recorded book values.
ADDITIONAL INFORMATION
1. Pad uses the equity method for its investment in Sum.
2. Intercompany merchandise sales totalled $100,000 during 2011. All intercompany balances have been paid except for $20,000 in transit at December 31, 2011.
3. Unrealized profits in Sum’s inventory of merchandise purchased from Pad were $24,000 on December 31, 2010, and $30,000 on December 31, 2011.
4. Sum sold equipment with a six year remaining life to Pad on January 3, 2009, at a gain of $48,000. Pad still uses the equipment in its operations.
5. Pad sold land to Sum on July 1, 2011, at a gain of $20,000.
6. Pad sold a building to Sum on July 1, 2011, at a gain of $40,000. The building has a 10 year remaining life and is still used by Sum.
7. Sum purchased $200,000 par value of Pad’s 10 percent bonds in the open market for $188,000 plus $10,000 accrued interest on December 31, 2011. Interest is paid semiannually on January 1 and July 1. The bonds mature on December 31, 2016.
Required: Prepare consolidation workpapers for Pad Corporation and Subsidiary for the year ended December 31, 2011.