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    Prather Inc bought 80% of Sands: Prepare consolidation worksheet

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    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.

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    https://brainmass.com/business/accounting/prather-bought-sands-prepare-consolidation-worksheet-285832

    Solution Summary

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

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