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Paulee Corporation paid $24,800 for an 80% interest in Sergio Corporation on January 1, 2015, at which time Sergio's stockholders' equity consisted of $15,000 of

Paulee Corporation paid $24,800 for an 80% interest in Sergio Corporation on January 1, 2015, at which time Sergio's stockholders' equity consisted of $15,000 of Common Stock and $6,000 of Retained Earnings. The fair values of Sergio Corporation's assets and liabilities were identical to reorded book values when Paulee acquired its 80% interest.

Sergio Corporation reported net income of $4,000 and paid dividends of $2,000 during 2015. Paulee Corporation sold inventory items to Sergio during 2015 and 2016 as follows:

20152016
Paulee's sales to Sergio$5,000$6,000
Paul's cost of sales to Sergio3,0003,500
Unrealized profit at year-end1,0001,500

At December 31, 2016, the accounts payable of Sergio include $1,500 owed to Paulee for inventory purchases.

The financial statements of Paulee and Sergio appear in the first two columns of the partially completed working papers.

REQUIRED:

1. Show all preliminary computations (5 pts)

2. Complete the consolidation working papers for Paulee Corporation and Subsidiary for the year ended December 31, 2016 (13 pts)

3. Give all eliminating journal entires (6 pts)

PauleeSergioEliminations- DebitEliminations- CreditNon-Cont. InterestConsolidated

INCOME STATEMENT

Sales

$43,000$20,000
Income from Sergio6,700
Cost of Sales(22,000)(8,000)

Other expenses

Non-controlling interest Expense

(12,200)(3,000)
Net Income15,5009,000

RETAINED EARNINGS

Retained Earnings 1/1

9,0008,000
Add: Net Income15,5009,000
Less: Dividends(10,000)(5,000)
Retained Earnings 12/31$14,500$12,000

BALANCE SHEET

Cash

5,4003,000
Accounts Receivable- Net14,00010,000
Dividend Receivable2,000
Inventories18,0008,000
Goodwill
Equipment and Buildings- Net24,00031,000
Investment in Sergio28,100
TOTAL ASSETS$91,500$52,000

LIAB. & EQUITY

Accounts payable

17,50012,500
Dividend payable7,0002,500
Other Debt12,50010,000
Capital Stock40,00015,000
Retained Earnings14,50012,000
1/1 Noncontrl Interest
12/31 Noncontrl Interest
LIAB. & EQUITY$91,500$52,000

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