Pal Corporation acquired 70 percent of the outstanding voting stock of Sal Corporation for $182,000 cash on January 1, 2011, when Sal's stockholders' equity was $260,000. All the assets and liabilities of Sal were stated at fair values (equal to book values) when Pal acquired its 70 percent interest.

Financial statements of the two corporations at and for the year ended December 31, 2011, are summarized as follows (in thousands):

REQUIRED
1. Prepare consolidation workpapers for Pal Corporation and Subsidiary for 2011.
2. Prepare a consolidated income statement and a consolidated balance sheet for Pal Corporation and Subsidiary.

Transcribed Image Text:

Pal Sal Combined Income and Retained Earnings Statements for the Year Ended December 31 Sales Income from Sal Cost of goods sold Operating expenses $1,240 42 (800) (260) (308)(80) 174 260 120) 314 Net income Add: Retained earnings January Deduct: Dividends (40) Retained earnings December 31 Balance Sheet at December 31 Cash Receivables-net Inventories Plant and equipment net Investment in Sal 182 $ 60 120 80 140 96 196 1,194 Total assets $400 $ 120 80 Accounts payable Other liabilities Capital stock, $10 par Other paid-in capital Retained earnings $ 72 48 200 16 64 $400 80 314 $1,194 Total equities