P $4-12$

Workpapers $($two years after acquisition, fair value$/$book differentials, adjustments$)$

Pat Corporation acquired an $80$ percent interest in Sci Corporation for $$480,000$ on January $1,2011,$ when Sci$$s stockholders$$ equity consisted of $$400,000$ capital stock and $$50,000$ retained earnings. The excess fair value over book value acquired was assigned to plant assets that were undervalued by $$100,000$ and to goodwill. The undervalued plant assets had a four$-$year useful life.

ADDITIONAL INFORMATION

$1.$ Pat$$s account receivable includes $$10,000$ owed by Sci.

$2.$ Sci mailed its check for $$40,000$ to Pat on December $30,2012,$ in settlement of the advance.

$3.$ A $$20,000$ dividend was declared by Sci on December $30,2012,$ but was not recorded by Pat.

$4.$ Financial statements for Pat and Sci Corporations for $2012$ follow $($in thousands$)$:

Pat Sci

Statements of Income and Retained Earnings

for the Year Ended December $31$

Sales $$1,800$ $$600$

Income from Sci Cost of sales Operating expenses

Net Income

Add: Retained earnings January $1$ Less: Dividends

Retained earnings December $31$

Balance Sheet at December $31$

Cash

Accounts receivable$$net Inventories

Advance to Sci

Other current assets

Land

Plant assets$$net Investment in Sci

Total assets

$76(1,200)(300)(380)(180)296120244100(200)(40)$ $ $340$ $$180$

$$12$ $$305240164120$

$401601032060680460560$

$$1,988$ $$720$

$136$ CHAPTER $4$

Pat Sci

Accounts payable Dividends payable Other liabilities Capital stock Retained earnings

Total liabilities and stockholders$$ equity

$ $48$ $$3020200901,400400340180$

$$1,988$ $$720$

R E Q U I R E D : Prepare consolidation workpapers for Pat Corporation and Subsidiary for $2012.$