Question

Balance Sheet Consolidation [AICPA Adapted]

Case Inc. acquired all Frey Inc.'s outstanding $25 par common stock on December 31, 20X3, in exchange for 40,000 shares of its $25 par common stock. Case's common stock closed at $56.50 per share on a national stock exchange on December 31, 20X3. Both corporations continued to operate as separate businesses maintaining separate accounting records with years ending December 31.

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On December 31, 20X4, after year-end adjustments and the closing of nominal accounts, the companies had condensed balance sheet accounts (below).

Additional Information

Case uses the equity method of accounting for its investment in Frey.

On December 31, 20X3, Frey's assets and liabilities had fair values equal to the book balances with the exception of land, which had a fair value of $550,000. Frey had no land transactions in 20X4.

On June 15, 20X4, Frey paid a cash dividend of $4 per share on its common stock.

On December 10, 20X4, Case paid a cash dividend totaling $256,000 on its common stock.

On December 31, 20X3, immediately before the combination, the stockholders' equity balance was:

	Case Inc.	Frey Inc.
Common Stock	$2,200,000	$1,000,000
Additional Paid-In Capital	1,660,000	190,000
Retained Earnings	3,166,000	820,000
	$7,026,000	$2,010,000

The 20X4 net income amounts according to the separate books of Case and Frey were $890,000 (exclusive of equity in Frey's earnings) and $580,000, respectively.

	Case Inc.	Frey Inc.
Assets
Cash	$ 825,000	$ 330,000
Accounts & Other Receivables	2,140,000	835,000
Inventories	2,310,000	1,045,000
Land	650,000	300,000
Depreciable Assets (net)	4,575,000	1,980,000
Investment in Frey Inc.	2,680,000
Long-Term Investments & Other Assets	865,000	385,000
Total Assets	$14,045,000	$4,875,000
Liabilities & Stockholders' Equity
Accounts Payable & Other Current Liabilities	$ 2,465,000	$1,145,000
Long-Term Debt	1,900,000	1,300,000
Common Stock, $25 Par Value	3,200,000	1,000,000
Additional Paid-In Capital	2,100,000	190,000
Retained Earnings	4,380,000	1,240,000
Total Liabilities & Stockholders' Equity	$14,045,000	$4,875,000

Required

Prepare a consolidated balance sheet worksheet for Case and its subsidiary, Frey, for December 31, 20X4. A formal consolidated balance sheet is not required.

Answer 1

Case Inc. and Frey Inc.
Consolidated Balance Sheet Workpaper
December 31, 20X4
	Case	Frey	Eliminations
Item	Inc.	Inc.	Debit	Credit	Consolidated
Cash	825,000	330,000			1,155,000
Accounts and Other Receivables	2,140,000	835,000			2,975,000
Inventory	2,310,000	1,045,000			3,355,000
Land	650,000	300,000	(2)    250,000		1,200,000
Deprec. Assets (net)	4,575,000	1,980,000			6,555,000
Investment in Frey Inc. Stock	2,680,000			(1)2,680,000
Long-Term Investments and Other Assets	865,000	385,000			1,250,000
Differential			(1)    250,000	(2)   250,000
Total Debits	14,045,000	4,875,000			16,490,000
Accounts Payable and Other Current Liabilities	2,465,000	1,145,000			3,610,000
Long-Term Debt	1,900,000	1,300,000			3,200,000
Common Stock, $25 Par	3,200,000	1,000,000	(1) 1,000,000		3,200,000
Additional Paid-In Capital	2,100,000	190,000	(1)    190,000		2,100,000
Retained Earnings	4,380,000	1,240,000	(1) 1,240,000	_________	4,380,000
Total Credits	14,045,000	4,875,000	2,930,000	2,930,000	16,490,000