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Prat and Sage - Consolidation

Prat Corporation paid $24,800 for an 80% interest in Sage Corporation on January 1, 2002, at which time Sage's stockholders' equity consisted of $15,000 of Common Stock and $6,000 of Retained Earnings. The fair values of Sage Corporation's assets and liabilities were identical to recorded book values when Prat acquired its 80% interest.

Sage Corporation reported net income of $4,000 and paid dividends of $2,000 during 2002.

Prat Corporation sold inventory items to Sage during 2002 and 2003 as follows:

2002 2003
Prat's sales to Sage $ 5,000 $ 6,000
Prat's cost of sales to Sage 3,000 3,500
Unrealized profit at year-end 1,000 1,500

The accounts payable of Sage include $1,500 owed to Prat for inventory purchases.

The following conversion to equity schedule provides information that may be helpful in completing the consolidation working papers for the year ended December 31, 2003.

Retained
Earnings
Investment
in Sage
Income
from Sage
Prior years:

Inventory profit $ ( 1,000 ) $( 1,000 )

Current year:

Inventory profit-2002 $ $ 1,000 $ 1,000
Inventory profit-2003 $ $( 1,500 ) $(1,500 )
Totals $ ( 1,000 ) $( 1,500 ) $( 500 )

Required:

Financial statements of Prat and Sage appear in the first two columns of the partially completed working papers. Complete the consolidation working papers for Prat Corporation and Subsidiary for the year ended December 31, 2003.

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