Question: SIMULATION #3
CONSOLIDATIONS
Cain Corp. acquired all of the outstanding $10 par value voting common stock of Frey, Inc. on January 1, 2013 in exchange for 25,000 shares of its $10 par value voting common stock. On December 31, 2012, Cain's common stock had a closing market price of $30 per share on a national stock exchange. Both companies continued to operate as separate business entities maintaining separate accounting records with years ending December 31.
On December 31, 2013, the companies had condensed financial statements as follows:
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Cain Corp.
Dr. (Cr.)
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Frey, Inc.
Dr. (Cr.)
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Income Statement:
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Net sales
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$(3,800,000)
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$(1,500,000)
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Equity in net income
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(178,000)
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Gain on sale of warehouse
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(30,000)
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Cost of goods sold
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2,360,000
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870,000
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Operating expenses
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1,100,000
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440,000
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Net income
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$(548,000)
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$(190,000)
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Retained Earnings Statement:
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Balance, 1/1/06
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$(440,000)
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$(156,000)
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Net income
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(548,000)
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(190,000)
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Dividends
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40,000
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Balance, 12/31/06
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$(988,000)
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$(306,000)
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Balance Sheet:
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Assets:
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Cash
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$570,000
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$150,000
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Accounts receivable (net)
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860,000
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350,000
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Inventories
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1,060,000
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410,000
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Land, plant and equipment
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1,320,000
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680,000
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Accumulated depreciation
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(370,000)
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(210,000)
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Investment in Frey
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888,000
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Total Assets
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$4,328,000
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$1,380,000
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Liabilities and Stockholders' Equity
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Accounts payable and accrued expenses
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$(1,340,000)
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$(594,000)
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Common stock ($10 par)
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(1,700,000)
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(400,000)
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Additional paid-in capital
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(300,000)
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(80,000)
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Retained earnings
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(988,000)
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(306,000)
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Total Liabilities and Stockholders' Equity
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$(4,328,000)
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$(1,380,000)
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Additional Information: • There were no changes in the common stock and additional paid-in capital accounts during 2013 except the one necessitated by Cain's acquisition of Frey.
• At the acquisition date, the fair value of Frey's machinery exceeded its book value by $54,000. The excess cost will be amortized over the estimated average remaining life of six years. The fair values of Frey's other assets and liabilities were equal to their book values. Any "other intangible asset" resulting from the acquisition will be amortized over a 20-year period.
• On July 1, 2013, Cain sold a warehouse facility to Frey for $129,000 cash. At the date of sale, Cain's book values were $33,000 for the land and $66,000 for the undepreciated cost of the building. Based on a real estate appraisal, Frey allocated $43,000 of the purchase price to land and $86,000 to building. Frey is depreciating the building over its estimated five-year remaining useful life by the straight-line method with no salvage value.
• During 2013, Cain purchased merchandise from Frey at an aggregate invoice price of $180,000, which included a 100% markup on Frey's cost. At December 31, 2013, Cain owed Frey $86,000 on these purchases, and $36,000 of this merchandise remained in Cain's inventory.
Reuired: Prepare a consolidated worksheet, complete with supporting elimination entries and calculations.