Any difference between book value and the value implied by the purchase price relates to goodwill. Required: A. What method is being used by Perez to account for its investment in Sanchez Company? How can you tell? B. Prepare a workpaper for the preparation of consolidated financial statements on 12/31/21. On January 1, 2017, Perez Company purchased 90% of the capital stock of Sanchez Company for $85,000. Sanchez Company had capital stock of $70,000 and retained earnings of $12,000 at that time. On December 31, 2021, the trial balances of the two companies were: Perez Sanchez Cash $ 13,000 $ 14,000 Accounts receivable 22,000 36,000 Inventory, 1/1 14,000 8,000 Advance to Sanchez Company 8,000 -0- Investment in Sanchez Company 85,000 -0- Plant and equipment 50,000 44,000 Land 17,800 6,000 Dividends declared 10,000 12,000 Purchases 84,000 20,000 10,000 16,000 Total debits $313,800 $156,000 Accounts payable $ 6,000 $ 6,000 Other liabilities 37,000 Advance from Perez Company -0- 8,000 Capital stock 100,000 70,000 Retained earnings 50,000 30,000 Sales 110,000 42,000 Dividend income 10,800 -O- Total credits $313,800 $156,000 Inventory, 12/31 $ 40,000 $ 15,000 Other expense -0- A B D E F G H 1 j Problem 4-5 1 2 3 4 5 Perez Company and Subsidiary Consolidated Statements Workpaper For the Year Ended December 31, 2021 Eliminating Entries Sanchez Company Dr. Cr. Noncontrolling Interest Consolidated Balance 42,000 42,000 8,000 20,000 28,000 15,000 13,000 16,000 29,000 13,000 13,000 30,000 13,000 (12,000) Perez 6 Company 7 Income Statement 8 Sales 110,000 9 Dividend Income 10,800 10 Total Revenue 120,800 11 Cost of Goods Sold 12 Inventory 1/1 14,000 13 Purchases 84,000 14 Available for sale 98,000 15 Inventory 12/31 40,000 16 Cost of Goods Sold 58,000 17 Other Expenses 10,000 18 Total Cost and Expense 68,000 19 Net Income 52,800 20 Noncontrolling Interest 21 Net Income to Retained Earnings 52,800 22. 23 Retained Earnings Statement 24 Retained Eamings 1/1 25 Perez Company 50,000 26 Sanchez Company 27 Net Income from Above 52,800 28 Dividends Declared 29 Perez Company (10,000) 30 Sanchez Company 31 Retained Eamings 12/31 92,800 32 33 Balance Sheet 34 Cash 13,000 35 Accounts Receivable 22,000 36 Inventory 12/31 40,000 37 Advance to Sanchez 8,000 38 Investment in Sanchez 85,000 39 Difference b/w Implied & Book Value 40 plant and Equipment 50,000 41 Land 17,800 42 43 Total 235,800 44 45 Accounts Payable 6,000 46 Other Liabilities 37,000 47 Advances from Perez 48 Common Stock 49 Perez Company 100,000 50 Sanchez Company 51 Retained Eamings from Above 92,800 52 1/1 Noncontrolling Interest 53 12/31 Noncontrolling Interest 54 Total 235,800 55 56 31,000 14,000 36,000 15,000 44,000 6,000 115,000 6,000 8,000 70,000 31,000 115,000