Question

Pruitt Corporation owns 90% of the common stock of Sedbrook Company. The stock was purchased for $540,000 on January 1, 2009, when Sedbrook Company’s retained earnings were $100,000. Preclosing trial balances for the two companies at December 31, 2013, are presented here:


The January 1, 2013, inventory of Sedbrook Company includes $30,000 of profit recorded by Pruitt Corporation on 2012 sales. During 2013, Pruitt Corporation made intercompany sales of $200,000 with a markup of 25% on cost. The ending inventory of Sedbrook Company includes goods purchased in 2013 from Pruitt for $50,000. Pruitt Corporation uses the complete equity method to record its investment in Sedbrook Company.

Required:
A. Prepare the consolidated statements workpaper for the year ended December 31, 2013.
B. Calculate consolidated retained earnings on December 31, 2013, using the analytical or t-accountapproach.


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  • CreatedMarch 13, 2015
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