Question: Pam Corporation has an 80 percent interest
Pam Corporation has an 80 percent interest in Sun Corporation, its only subsidiary. The 80 percent interest was acquired on July 1, 2016, for $800, at which time Sun’s equity consisted of $600 capital stock and $200 retained earnings. The excess of fair value over book value was assigned to buildings with a 20-year remaining useful life.
On December 31, 2018, Sun sold equipment with a remaining useful life of four years to Pam at a gain of $40. Pam Corporation had separate income for 2018 of $1,000 and for 2019 of $1,200.
Income and retained earnings data for Sun Corporation for 2018 and 2019 are as follows:
REQUIRED:
1. Compute Pam Corporation’s income from Sun, net income, and consolidated net income for each of the years 2018 and 2019.
2. Compute the correct balances of Pam’s investment in Sun at December 31, 2018 and 2019, assuming no changes in Sun’s outstanding stock since Pam acquired its interest.
Transcribed Image Text:
2018 2019 Retained earnings January 1 Add: Net income S300 $400 200 220 Deduct: Dividends 100 S400 120 Retained earnings December 31 $500
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