Pas Corporation acquired 80 percent of Sel Corporation’s common stock on January 1, 2011, for $210,000 cash. The stockholders’ equity of Sel at this time consisted of $150,000 capital stock and...

Introduction to Consolidated Financial Statements
    Problem 4-9 Beams, Anthony, Bettinghaus, & Smith, Advanced Accounting, 11th ed.
    Pas Corporation acquired 80 percent of Sel Corporation’s common stock on January 1, 2011, for $210,000 cash. The stockholders’ equity of Sel at this time consisted of $150,000 capital stock and $50,000 retained earnings. The difference between the fair value of Sel and the underlying equity acquired in Sel was due to a $12,500 undervaluation of Sel’s inventory, a $25,000 undervaluation of Sel’s equipment, and unrecorded patents with a 20-year life.
The undervalued inventory items were sold by Sel during 2011, and the undervalued equipment had a remaining useful life of five years. Straight-line depreciation is used.
Sel owed Pas $4,000 on accounts payable at December 31, 2011.
The separate financial statements of Pas and Sel Corporations at and for the year ended December 31, 2011, are as follows (in thousands):
Combined Income and Retained Earnings
Statements for the Year Ended December 31
    
    
    Pas
    Sel
    
    
    
    
    
    
    
    Sales
     $ 200
     $ 110
    
    
    Income from Sel
     17
     ----
    
    
    Cost of sales
     (80)
     (40)
    
    
    Depreciation expense
     (40)
     (20)
    
    
    Other expenses
     (25.5)
     (10)
    
    
     Net income
     71.5
     40
    
    
    Add: Retained earnings January1
     75
     50
    
    
    Deduct: Dividends
     (40)
     (20)
    
    
    
    
    
    
    
     Retained earnings December 31
     $106.5
     $70
    
Balance Sheet at December 31
    
    
    Pas
    Sel
    
    
    Assets
    
    
    
    
    Cash
     $ 29.5
    $ 30
    
    
    Trade receivables—net
     28
     40
    
    
    Dividends receivable
     8
     ----
    
    
    Inventories
     40
     30
    
    
    Land
     15
     30
    
    
    Buildings—net
     65
     70
    
    
    Equipment—net
     200
     100
    
    
    Investment in Sel
     211
     ----
    
    
    
    
    
    
    
     Total assets
     $596.5
     $300
    
    
    Liabilities and Stockholders’ Equity
    
    
    
    
    Accounts payable
     $ 40
     $ 50
    
    
    Dividends payable
     100
     10
    
    
    Other Liabilities
     50
     20
    
    
    Capital stock, $10 par
     300
     150
    
    
    Retained earnings
     106.5
     70
    
    
    
    
    
    
    
     Total equities
     $596.5
     $300
    
    REQUIRED: Prepare consolidation workpapers for Pas Corporation and Subsidiary at and for the year ended December 31, 2011.
Supporting computations:
    Cost of 80% interest in Sel, Jan. 1, 2011
    210,000
    
    
    Implied total Fair Value of Sel ($210,000 / 80%)
     262,500
    Book value of Sel’s net assets (100%)
     200,000
    Excess fair value over book value
     62,500
    
    
    Excess allocated:
    
    
Undervalued inventory
    12,500
    
Undervalued equipment
    25,000
    
Remainder to patents
    25,000
    Excess fair value over book value acquired
    62,500

Income from Sel
...