| Koel Corporation acquired all the voting stock of Rain Company for $500,000 on January 1, 2005 when Rain had Capital Stock of $300,000 and Retained Earnings of $150,000. Rain’s assets and liabilities were fairly valued except for the plant assets. The entire cost-book differential is allocated to plant assets and is fully depreciated on a straight-line basis over a 10-year period.During 2005, Koel borrowed $25,000 on a short-term non-interest-bearing note from Rain, and on December 31, 2005, Koel mailed a check to Rain to settle the note. Rain deposited the check on January 5, 2006, but receipt of payment of the note was not reflected in Rain’s December 31, 2005 balance sheet.Required:Complete the consolidation working papers. |
| Koel Corporation and Subsidiary |
| Consolidated Balance Sheet Working Papers |
| at December 31, 2005 |
| | Koel | Rain | Eliminations | Non-Cntl | BalanceSheet |
| Debit | | Credit |
| INCOME STATEMENTSales | $ | 500,000 | $400,000 | | | | | | 900,000 |
| Income fromRain | | 135,000 | | | 135,000 | | | | |
| Cost of Sales | | (350,000) | (200,000) | | | | | | -550,000 |
| Other expenses | | (100,000) | (60,000) | | | | | | -165,000 |
| Net income | | 185,000 | 140,000 | | | | | | 185,000 |
| | | | | | | | | |
| Koel RetainedEarnings 1/1 | | 300,000 | | | | | | | 300,000 |
| Rain RetainedEarnings | | | 150,000 | | | | 150,000 | | |
| Add:Net income | $ | 185,000 | $140,000 | | | | | | 185,000 |
| Less:Dividends | | | (70,000) | | | | 70,000 | | |
| RetainedEarnings 12/31 | $ | 485,000 | $220,000 | | | | | | 485,000 |
| BALANCE SHEET | | | | | | | | | |
| Note Receivablefrom Koel | | | 25,000 | | | | 25,000 | | |
| Other currentassets | | 210,000 | 300,000 | | 25,000 | | | | 535,000 |
| Plant assets-net | | 200,000 | 425,000 | | 50,000 | | 5,000 | | 670,000 |
| Investment inRain Company | | 565,000 | | | | | | | |
| TOTAL ASSETS | $ | 975,000 | $750,000 | | | | | | 1,205,000 |
| EQUITIESLiabilities | | 290,000 | 230,000 | | | | | | 520,000 |
| Capital Stock | | 200,000 | 300,000 | | 300,000 | | | | 200,000 |
| RetainedEarnings | | 485,000 | 220,000 | | | | | | 485,000 |
| TOTAL EQUITIES | $ | 975,000 | $750,000 | | | | | | 1,205,000 |
PLEASE VERIFY ANSWER THAT IS CORRECT, AND PLESAE ALSO EXPLAIN HOW ARRIVED AT ANSWER
