11 pommu corporation paid 78 000 for a 60 interest in schtick inc on january 1 2011 4307669

11 pommu corporation paid 78 000 for a 60 interest in schtick inc on january 1 2011 4307669

11) Pommu Corporation paid $78,000 for a 60% interest in Schtick Inc. on January 1, 2011, when Schtick's Capital Stock was $80,000 and its Retained Earnings $20,000. The fair values of Schtick's identifiable assets and liabilities were the same as the recorded book values on the acquisition date. Trial balances at the end of the year on December 31, 2011 are given below:

PommuSchtick

Cash$4,500$20,000

Accounts Receivable24,00030,000

Inventory100,00070,000

Investment in Schtick78,000

Cost of Goods Sold71,50050,000

Operating Expenses22,00037,000

Dividends15,00010,000

$315,000$217,000

Liabilities$47,000$27,000

Capital stock, $10 par value100,00080,000

Additional Paid-in Capital11,000

Retained Earnings31,00020,000

Sales Revenue120,00090,000

Dividend Income6,000          

$315,000$217,000

During 2011, Pommu made only two journal entries with respect to its investment in Schtick. On January 1, 2011, it debited the Investment in Schtick account for $78,000 and on November 1, 2011, it credited Dividend Income for $6,000.

Required:

1.Prepare a consolidated income statement and a statement of retained earnings for Pommu and Subsidiary for the year ended December 31, 2011.

2.Prepare a consolidated balance sheet for Pommu and Subsidiary as of December 31, 2011.

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