Purple Manufacturing purchased 60 percent of the ownership of Socks Corporation stock on January 1, 20X1, at underlying book value. At that date, the fair value of the noncontrolling interest was equal to 40 percent of the book value of Socks Corporation. Purple also purchased $50,000 of Socks bonds at par value on December 31, 20X3. Socks sold the 10- year bonds on January 1, 20X1, at 120; they have a stated interest rate of 12 percent. Interest is paid semiannually on June 30 and December 31. Assume Purple uses the fully adjusted equity method. On December 31, 20X1, Socks sold a building with a remaining life of 15 years to Purple for $30,000. Socks had purchased the building 10 years earlier for $40,000. It is being depreciated based on a 25-year expected life.

Trial balances for the two companies on December 31 20X3, are as follows:

Required

a. Prepare a consolidation worksheet for 20X3 in good form.

b. Prepare a consolidated balance sheet, income statement, and statement of changes in retained earnings for 20X3.

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Item Cash Accounts Receivable Inventory Investment in Socks Corp. Bonds Investment in Socks Corp. Stock Depreciable Assets (net) Interest Expense Operating Expenses Dividends Declared Accounts Payable Bonds Payable Bond Premium Common Stock Retained Earnings Sales Income from Socks Corp. Total Purple Manufacturing Debit Credit $ 68,000 100,000 120,000 50,000 101,545 360,000 20,000 302,200 40,000 $ 94,200 200,000 300,000 145,123 400,000 22,422 $1,161,745 $1,161,745 Socks Corporation Debit Credit $ 55,000 75,000 110,000 210,000 20,884 150,000 10,000 $630,884 $ 52,000 200,000 31,413 100,000 47,471 200,000 $630,884