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40.     A working paper elimination (in journal entry format) for Pigot Corporation and its wholly owned subsidiary, Soper Company, on December 31, 2005, was as follows:

ABLE BORDER=1>

 

Intercompany Interest Revenue?Pigot ($85,097 x 0.12)

10,212

 

 

Intercompany Bonds Payable?Soper

100,000

 

 

 

Discount on Intercompany

 

 

 

Bonds Payable?Soper ($5,335 – $467)

4,868

 

 

 

Investment in Soper Company Bonds?Pigot ($85,097 +

 

 

 

$1,212)

86,309

 

 

 

Intercompany Interest Expense?Soper [($100,000 – $5,335)

 

 

 

x 0.10]

9,467

 

 

 

Retained Earnings?Soper [($100,000 – $5,335) – $85,097]

9,568

     To eliminate subsidiary's 9% bonds (due December 31, 20012,
          interest payable each December 31) owned by parent company
          and related interest revenue and expense; and to increase
          subsidiary's beginning retained earnings by the amount of
          unamortized realized gain on the extinguishment of the bonds
          December 31, 2004. (Income tax effects are disregarded.)
          
          Prepare a comparable working paper elimination (in journal entry format) for Pigot Corporation and subsidiary on December 31, 2006. Omit explanation and disregard income taxes.

41.     Patch Corporation accounts for the investment in its 70%-owned subsidiary, Scalar Company, by the equity method. Amounts in the financial statements of the two companies for the fiscal year ended December 31, 2006, after closing entries, included the following:

Patch

Scalar

 

 

 

Corporation

Company

 

 

Net income

$320,000

$150,000

 

 

Retained earnings

580,000

340,000

 

 

Retained earnings of subsidiary

80,000

 

 

Working paper eliminations for the consolidated financial statements of Patch Corporation and subsidiary included the following intercompany profit items:

 

 

 

 

 

 

Patch

Scalar

 

 

 

Corporation

Company

 

 

In beginning inventories:

 

 

 

Scalar sales to Patch

$10,000

 

 

 

Patch sales to Scalar

 

$15,000

 

 

 

 

 

In ending inventories:

 

 

 

Scalar sales to Patch

28,000

 

 

 

Patch sales to Scalar

 

20,000

 

 

 

Prepare a working paper to compute the following:
          a. Consolidated net income for the year ended December 31, 2006
          b. Consolidated retained earnings, December 31, 2006

42.     On May 1, 2003, Spe Company sold to Pub Corporation, its parent company, for $120,000 machinery with a carrying amount of $90,000 (net of $10,000 accumulated depreciation), a remaining economic life of six years, and no residual value. Pub adopted the straight-line method of depreciation for the machinery. Pub owns 80% of Spe's outstanding common stock.
          a.      Prepare Spe Company's May 1, 2003, journal entry to record the sale of the machinery. Omit explanation and disregard income taxes.
          b.      Prepare a working paper for Pub Corporation and subsidiary summarizing the working paper eliminations (in journal entry format) with respect to the machinery for the three fiscal years ending April 30, 2006. Omit explanations and disregard income taxes. Use the following format:

 

Fiscal Year Ending April 30,

Ledger Accounts

2004

2005

2006

 

Dr

Cr

Dr

Cr

Dr

Cr

Intercompany Gain on Sale of Machinery—Spe

 

 

 

 

 

 

Retained Earnings—Spe

 

 

 

 

 

 

Minority Interest in Net Assets of Subsidiary

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Depreciation—Pub

 

 

 

 

 

 

Machinery—Pub

 

 

 

 

 

 

Depreciation

Expense—Pub

 

 

 

 

 

 

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