3. Son Company owes Pop $20,000 on account, and Pop owes Son $20,000 on a note payable — Separate financial statements for Corporation its subsidiary the year ended December 2017

Separate company financial statements for Pop Corporation and its subsidiary, Son Company, at and for the year ended December 31, 2017, are summarized as follows (in thousands):

Additional Information

1. Pop Corporation acquired 13,500 shares of Son Company stock for $60 per share on January 1, 2016, when Son’s stockholders’ equity consisted of $600,000 capital stock and $60,000 retained earnings.

2. Son Company’s land was undervalued when Pop acquired its interest, and accordingly, $80,000 of the fair value/book value differential was assigned to land. Any remaining differential is assigned to unrecorded patents with a 10-year remaining life.

3. Son Company owes Pop $20,000 on account, and Pop owes Son $20,000 on a note payable.

Required:

Prepare consolidated work-papers for Pop Corporation and Subsidiary for the year ended December 31, 2017?

SOLUTION

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Supporting computations

Ownership percentage 13,500/15,000 shares = 90%

Investment cost (13,500 shares $60)	$810,000
Implied fair value of Son ($810,000 / 90%)	$900,000
Book value of Son	660,000
Excess fair value over book value	$240,000
Excess allocated to
Land	$ 80,000
Remainder to patents	160,000
Excess fair value over book value	$240,000
Income from Son
Son’s reported net income	$ 96,000
Less: Patent amortization	(16,000)
Son’s adjusted income	$ 80,000
Pop’s share of Son’s income (90%)	$ 72,000
Noncontrolling interest share (10%)	$ 8,000
Investment in Son December 31, 2017
Cost January 1, 2016	$810,000
Pop’s share of the change in Son’s retained earnings
($168,000 - $60,000) 90%	97,200
Less: Pop’s share (90%) of Patent amortization for 2 years	(28,800)
Investment in Son December 31	$878,400

Pop Corporation and Subsidiary

Consolidation Workpapers

for the year ended December 31, 2017

(in thousands)

	Pop	90% Son	Adjustments and Eliminations	Adjustments and Eliminations	Consolidated Statements
Income Statement Sales	$1,600	$ 400			$2,000
Income from Son	72		a 72
Cost of sales	1,000*	200*			1,200*
Other expenses	402.4*	104*	c 16		522.4*
Consolidated NI					$ 277.6
Noncontrolling share			g 8		8*
Controlling share of NI	$ 269.6	$ 96			$ 269.6
Retained Earnings Retained earnings—Pop	$ 708				$ 708
Retained earnings —Son		$ 136	b 136
Net income	269.6	96			269.6
Dividends	200*	64*		a 57.6
				g 6.4	200*
Retained earnings – Dec 31	$ 777.6	$ 168			$ 777.6
Balance Sheet Cash	$ 72	$ 60			$ 132
Accounts receivable	320	80		f 20	380
Dividends receivable	28.8			d 28.8
Inventories	380	40			420
Note receivable —Pop		20		e 20
Investment in Son	878.4			a 14.4 b 864
Land	260	120	b 80		460
Buildings —net	680	320			1,000
Equipment —net	520	200			720
Patents	________	_____	b 144	c 16	128
	$3,139.2	$ 840			$3,240
Accounts payable	$ 341.6	$ 40	f 20		$ 361.6
Note payable to Son	20		e 20
Dividends payable		32	d 28.8		3.2
Capital stock	2,000	600	b 600		2,000
Retained earnings	777.6	168			777.6
	$3,139.2	$ 840
Noncontrolling interest January 1	Noncontrolling interest January 1	Noncontrolling interest January 1		b 96
Noncontrolling interest December 31	Noncontrolling interest December 31	Noncontrolling interest December 31	_________	g 1.6	97.6
			1,124.8	1,124.8	$3,240

*Deduct