On January 1, 2011, Pride, Inc. acquired 80% of the outstanding voting common stock of Strong Corp

On January 1, 2011, Pride, Inc. acquired 80% of the outstanding voting common stock of Strong Corp

REFERENCE: Ref. 05_04

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On January 1, 2011, Pride, Inc. acquired 80% of the outstanding voting common stock of Strong Corp. for $364,000.  There is no active market for Strong’s stock.  Of this payment, $28,000 was allocated to equipment (with a five-year life) that had been undervalued on Strong’s books by $35,000.  Any remaining excess was attributable to goodwill which has not been impaired.

 

As of December 31, 2011, before preparing the consolidated worksheet, the financial statements appeared as follows:

 

 

 

 

 

Pride, Inc.

 

   Strong Corp.

 

Revenues

 

$    420,000

 

$280,000

 

Cost of goods sold

 

    (196,000)

 

  (112,000)

 

Operating expenses

 

      (28,000)

 

   (14,000)

 

Net income

 

$    196,000

 

$154,000

 

 

 

 

 

 

 

Retained earnings, 1/1/11

 

$    420,000

 

$210,000

 

Net income (above)

 

     196,000

 

  154,000

 

Dividends paid

 

               0

 

           0

 

Retained earnings, 12/31/11

 

$    616,000

 

$364,000

 

 

 

 

 

 

 

Cash and receivables

 

$   294,000

 

$126,000

 

Inventory

 

     210,000

 

  154,000

 

Investment in Strong Corp

 

     364,000

 

           0

 

Equipment (net)

 

     616,000

 

  420,000

 

Total assets

 

$1,484,000

 

$700,000

 

 

 

 

 

 

 

Liabilities

 

$   588,000

 

$196,000

 

Common stock

 

     280,000

 

  140,000

 

Retained earnings, 12/31/11 (above)

 

     616,000

 

  364,000

 

Total liabilities and stockholders’ equity

 

$1,484,000

 

$700,000

 

During 2011, Pride bought inventory for $112,000 and sold it to Strong for $140,000.  Only half of this purchase had been paid for by Strong by the end of the year.  60% of these goods were still in the company’s possession on December 31.

 

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