Balance sheets for P Company and S Company on August 1, 2011, are as follows:

Required:
Prepare a workpaper for a consolidated balance sheet for P Company and its subsidiary on August 1, 2011, taking into consideration the following:
1. P Company acquired 90% of the outstanding common stock of S Company on August 1, 2011, for a cash payment of $586,500.
2. Included in the Investment in Bonds account are $40,000 par value of S Company bonds payable that were purchased at par by P Company in 2002. The bonds pay interest on April 30 and October 31. S Company has appropriately accrued interest expense on August 1, 2011; PCompany, however, inadvertently failed to accrue interest income on the S Company bonds.
3. Included in P Company receivables is a $35,000 cash advance to S Company that was mailed on August 1, 2011. S Company had not yet received the advance at the time of the preparation of its August 1, 2011, balance sheet.
4. Assume that any excess of book value over the value implied by purchase price is due to overvalued plant andequipment.

Transcribed Image Text:

P Company S Company Cash Receivables Inventory Investment in bonds Investment in S Company stoclk Plant and equipment (net) Land 165,500 366,000 261,000 306,000 586,500 573,000 200,000 $2,458,000 $106,000 126,000 108,000 320,000 300,000 Total $960,000 174,000 32,400 Accounts payable Accrued expenses Bonds payable, 8% Common stock Other contributed capital Retained earnings 58,000 26,000 200,000 460,000 60,000 156,000 $960,000 1,500,000 260,000 491,600 Total $2,458,000