Share
Explore BrainMass

Prather Inc bought 80% of Sands: Prepare consolidation worksheet

Prather Inc. bought eighty percent of the outstanding common stock of Sands Corp. on January 1, 2008, for $952,000 cash. Total book value of Sands on that date was only $840,000. However, Sands possessed several accounts that had fair market values that differed from their book values:
Book Value Fair Market Value
Land $224,000 $315,000
Buildings and Equipment (10 yr life) $385,000 $350,000
Notes Payable (due in 8 yrs) $182,000 $168,000

The business combination was accounted for using the acquisition method. For internal reporting purposes, Prather Inc. employed the full equity method to account for this investment.

The following account balances are for the year ending December 31, 2008 for both companies:

Prather Inc. Sands Corp.
Revenues $(1,904,000) $(756,000)
Expenses 1,406,000 567,000
Equity in Income of Sands (152,600) 0
Net Income $(650,600) $(189,000)

Retained Earnings (1/1) $(1,771,000) $(616,000)
Net income (from above) (650,600) (189,000)
Dividends Paid 364,000 91,000
Retained Earnings (12/31) $(2,057,600) $(714,000)

Current Assets $1,351,000 $739,200
Investment in Sands Corp 1,031,800 0
Land 408,800 224,000
Buildings and Equipment (net) 1,227,800 364,000
TOTAL ASSETS $4,019,400 $1,327,200

Accounts Payable $(267,800) $(207,200)
Notes Payable (644,000) (182,000)
Common Stock (420,000) (140,000)
Additional Paid-in-Capital (630,000) (84,000)
Retained Earnings (2,057,600) (714,000)
TOTAL LIAB & EQUITY $(4,019,400) $(1,327,200)

Using the information provided, prepare a consolidation worksheet for this business combination.

Solution Summary

The expert prepares a consolidation worksheet for Prather Inc bought 80% of Sands.

$2.19