Complete Equity with downstream sales:
Pruitt Corporation owns 90% of the common stock of Sedbrook Company. The stock was purchased for $540,000 on January 1, 2009, when Sedbrook Company’s retained earnings were $100,000. Preclosing trial balances for the two companies at December 31, 2013, are presented here.
Pruitt Sedbrook Corporation Company
Cash $ 83,000 $ 80,000
Accounts Receivable 213,000 112,500
Inventory 150,000 110,000
Investment in Sedbrook Co. 568,250
Other Assets 500,000 400,000
Dividends Declared 100,000 30,000
Purchases 850,000 350,000
Other expenses 180,000 137,500
$2, 644,250 $1,220,000
Accounts Payable 70,000 30,000
Other Liabilities 75,000 40,000
Common Stock 800,000 500,000
Retained Earnings 1/1 532,000 120,000
Sales 1,100,000 530,000
Equity in Subsidiary Income 67,250 $2,644,250 $1,220,000
Ending Inventory $ 200,000 $ 120,000
The January 1, 2013, inventory of Sedbrook Company includes $30,000 of profit recorded by Pruitt Corporation on 2012 sales. During 2013, Pruitt Corporation made intercompany sales of $200,000 with a markup of 25% on cost. The ending inventory of Sedbrook Company includes goods purchased in 2013 from Pruitt for $50,000. Pruitt Corporation uses the complete equity method to record its investment in Sedbrook Company.
a. Prepare the consolidated statements workpaper for the year ended December 31, 2013.
b. Calculate consolidated retained earnings on December 31, 2013, using the analytical or t-account approach.
Click here for the solution: Pruitt Corporation owns 90% of the common stock of Sedbrook Company
