Question

Place Company purchased 92% of the common stock of Shaw, Inc. on January 1, 2012, for $402,800. Trial balances at the end of 2012 for the companies were:

		Place		Shaw
Cash		$80,400		$86,400
Accounts and Notes Receivable		200,600		206,900
Inventory, 1/1		70,400		49,000
Investment in Shaw, Inc.		402,800		—0—
Plant Assets		295,800		197,400
Dividends Declared		34,900		21,700
Purchases		238,100		149,200
Selling Expenses		27,700		20,000
Other Expenses		15,300		12,800
		$1,366,000		$743,400
Accounts and Notes Payable		$97,800		$37,700
Other Liabilities		45,600		15,100
Common Stock, $10 par		149,200		98,900
Other Contributed Captital		278,600		148,900
Retained Earnings, 1/1		227,100		169,800
Sales		547,736		273,000
Dividend Income		19,964		—0—
		$1,366,000		$743,400

Inventory balances on December 31, 2012, were $24,500 for Place and $15,200 for Shaw, Inc. Shaw’s accounts and notes payable contain a $14,700 note payable to Place.

Prepare a workpaper for the preparation of consolidated financial statements on December 31, 2012. The difference between book value of equity acquired and the value implied by the purchase price relates to subsidiary land, which is included in plant assets.

Answer 1

The workpaper is prepared as below:

	Work Paper
	Place Co.	Shaw Inc.	Debit		Credit		Noncontrolling Interest	Consolidated Balances
	Income Statement
Sales	547,736	273,000						820,736
Dividend Income (21,700*.92)	19,964		1)	19,964				0
Total Revenue	567,700	273,000						820,736
Cost of Goods Sold:
Inventory, 1/1	70,400	49,000						119,400
Purchases	238,100	149,200						387,300
Cost of Goods Available for Sale	308,500	198,200						506,700
Inventory, 12/31	24,500	15,200						39,700
Cost of Goods Sold	284,000	183,000						467,000
Selling Expenses	27,700	20,000						47,700
Other Expenses	15,300	12,800						28,100
Total Cost and Expense	327,000	215,800						542,800
Net Consolidated Income	240,700	57,200						277,936
Non Controlling Interest in Consolidated Income (57,200*.08)							4,576	-4,576
Net Income Transferred to Retained Earnings	$240,700	$57,200		$19,964			$4,576	$273,360
	Retained Earnings
1/1, Retained Earnings
Place Company	227,100							227,100
Shaw Inc.		169,800	2)	169,800				0
Net Income from Above	240,700	57,200		19,964			4,576	273,360
Dividends Declared								0
Place Company	-34,900				1)	19,964		-34,900
Shaw Inc.		-21,700					-1,736	0
12/31, Retained Earnings Transferred to Balance Sheet	$432,900	$205,300		$189,764	1)	$19,964	$2,840	$465,560
	Balance Sheet
Cash	80,400	86,400						166,800
Accounts and Notes Receivable	200,600	206,900			4)	14,700		392,800
Inventory	24,500	15,200						39,700
Investment in Shaw Co.	402,800				2)	402,800
Difference between Implied and Book Value			2)	20,226	3)	20,226
Plant Assets	295,800	197,400	3)	20,226				513,426
Total	$1,004,100	$505,900						$1,112,726
Accounts and Notes Payable	97,800	37,700	4)	14,700				120,800
Other Liabilities	45,600	15,100						60,700
Common Stock
Place Company	149,200							149200
Shaw Inc.		98,900	2)	98,900
Other Contributed Capital
Place Company	278,600							278,600
Shaw Inc.		148,900	2)	148,900
Retained Earnings from Above	432,900	205,300		189,764		19,964	2,840	465,560
1/1, Noncontrolling Interest					2)	35,026	35,026
12/31, Noncontrolling Interest							37866	37,866
Total	$1,004,100	$505,900		$492,716		$492,716		$1,112,726

_____

Notes:

	Parent Share	Non-Controlling Share	Entire Value
Purchase Price and Implied Value	402,800	35,026 (437,826 - 402,800)	437,826 (402,800/.92)
Less Book Value of Equity Acquired	384,192 (417,600*.92)	33,408 (417,600*.08)	417,600 (98,900 + 148,900 + 169,800)
Difference between Implied and Book Value	18,608	1,618	20,226
Undervalued Land	-18,608	-1,618	-20,226
Balance	0	0	0