Pruitt Corporation owns 90% of the common stock of Sedbrook Company. The stock was purchased for $540,000

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Pruitt Corporation owns 90% of the common stock of Sedbrook Company. The stock was purchased for $540,000 on January 1, 2022, when Sedbrook Company’s retained earnings were $100,000. Preclosing trial balances for the two companies at December 31, 2026, are presented here:image

The January 1, 2026, inventory of Sedbrook Company includes $30,000 of profit recorded by Pruitt Corporation on 2025 sales. During 2026, 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 2026 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, 2026.
B. Calculate consolidated retained earnings on December 31, 2026, using the analytical or T-account approach.

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Related Book For  answer-question

Advanced Accounting

ISBN: 9781119794653

8th Edition

Authors: Debra C. Jeter, Paul K. Chaney

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