Problem
Pop Corporation acquired a 70% interest in Stu Corporation on January 1, 2011, for 1,400,000, when Stu's (net assets) stockholders' equity consisted of $1,000,000 capital stock and $600,000 retained earnings. On this date, the book value of Stu's assets and liabilities was equal to the fair value, except for inventories that were undervalued by $40,000 and sold in 2011, and plant assets that were undervalued by $160,000 and had a remaining useful life of eight (8) years from January 1. Stu's net income and dividends for 2011, 2012, and 2013 are as follows:
2011 2012 2013
Net Income $140,000 $150,000 $200,000
Dividend 20,000 40,000 60,000
Separate-company Balance sheet information for Pop and Stu Corporations at December 31, 2011, follows (in thousands):
Pop Corporation Stu Corporation
Cash $ 120 $ 40
Accounts Receivable-customers 880 400
Account receivable from Pop 20
Dividend Receivable 14 --
Inventories 1,000 640
Land 200 300
Plant Assets - net 1,400 700
Investment in Sue 1,442 --
Total Assets $ 5,056 $2,100
Accounts Payable -Suppliers $ 600 $ 160
Accounts Payable to Stu 20 --
Dividends Payable 80 20
Long-term Debt 1,200 200
Capital Stock 2,000 1,000
Retained Earnings 1,156 720
Total L. & OE. $ 5,056 $ 2,100
Required:
1. Verify Retained Earnings of Stu ($720) at Dec. 31, 2011.
2. Verify the balance of Investment ($1,442) in the book of Pop.
3. Determine the amount of non-controlling (minority) interest that should be reported in the Dec. 31, 2011 consolidated balance sheet.
4. Prepare Working paper eliminating entries for preparation of Dec. 31, 2011 consolidated balance sheet by Pop.
5. Indicate in which book, Pop (parent) or Stu (subsidiary) the above working paper eliminating entries are recorded.
6. Prepare consolidated balance sheet as of Dec. 31, 2011.
7. Determine the amount of Stu's Retained Earnings at Dec. 31, 2012.
8. Determine the amount of Pop's Investment as of Dec. 31, 2012.
9. Determine the amount of non-controlling (minority) interest that should be reported in the Dec. 31, 2012 consolidated balance sheet.
10. Prepare Working paper eliminating entries for preparation of Dec. 31, 2012 consolidated balance sheet by Pop.
11. Determine the amount of Stu's Retained Earnings at Dec. 31, 2013.
12. Determine the amount of Pop's Investment as of Dec. 31, 2013.
13. Determine the amount of non-controlling (minority) interest that should be reported in the Dec. 31, 2013 consolidated balance sheet.
14. Prepare Working paper eliminating entries for preparation of Dec. 31, 2013 consolidated balance sheet by Pop.