On January 1, 2011, Pride, Inc. acquired 80% of the outstanding voting common stock of Strong Corp
REFERENCE: Ref. 05_04
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:
| Strong Corp.|
|Cost of goods sold|
|Retained earnings, 1/1/11|
|Net income (above)|
|Retained earnings, 12/31/11|
|Cash and receivables|
|Investment in Strong Corp|
|Retained earnings, 12/31/11 (above)|
|Total liabilities and stockholders’ equity|
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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