pollek corporation paid 16 200 for a 90 interest in swamp corporation on january 1 2 337182

Cho 6 6 usa9A INTERNATIONAL COLLEGE OF THE CAYMAN ISLANDS

BE440 — ADVANCED ACCOUNTING — Assignment I

Pollek Corporation paid $16,200 for a 90% interest in Swamp Corporation on January 1, 2011, when Swamp stockholders’ equity consisted of $10,000 Capital Stock and $3,000 of Retained Earnings. The excess cost over book value was attributable to goodwill.

Additional information:

1. Pollek sells merchandise to Swamp at 120% of Pollek’s cost. During 2011, Pollek’s sales to Swamp were $4,800, of which half of the merchandise remained in Swamp’s inventory at December 31, 2011. (The 2011 ending inventory was sold in 2012.) During 2012, Pollek’s sales to Swamp were $6,000 of which 60% remained in Swamp’s inventory at December 31, 2012. At year end 2012, Swamp owed Pollek $1,500 for the inventory purchased during 2012.

2. Pollek Corporation sold equipment with a book value of $2,000 and a remaining useful life of four years and no salvage value to Swamp Corporation on January 1, 2012 for $2,800. Straight line depreciation is used.

3. Separate company financial statements for Pollek Corporation and Subsidiary at December 31, 2012 are summarized in the first two columns of the consolidation working papers.

4. The following information is available for 2011:

Swamp’s income Swamp’s dividends received by Pollek

$4,000 $1,800