PROBLEM 3-8 Intercompany Items, Two Subsidiaries On February 1, 2011, Punto Company purchased 95% of the outstanding common stock of Sara Company and…

PROBLEM 3-8 Intercompany Items, Two SubsidiariesOn February 1, 2011, Punto Company purchased 95% of the outstanding common stock ofSara Company and 85% of the outstanding common stock of Rob Company. Immediatelybefore the two acquisitions, balance sheets of the three companies were as follows:Punto Sara RobCash $165,000 $ 45,000 $17,000Accounts receivable 35,000 35,000 26,000Notes receivable 18,000 —0— —0—Merchandise inventory 106,000 35,500 14,000Prepaid insurance 13,500 2,500 500Advances to Sara Company 10,000Advances to Rob Company 5,000Land 248,000 43,000 15,000Buildings (net) 100,000 27,000 16,000Equipment (net) 35,000 10,000 2,500Total $735,500 $198,000 $91,000Accounts payable $ 25,500 $ 20,000 $10,500Income taxes payable 30,000 10,000 —0—Notes payable —0— 6,000 10,500Bonds payable 100,000 —0— —0—Common stock, $10 par value 300,000 144,000 42,000Other contributed capital 150,000 12,000 38,000Retained earnings (deficit) 130,000 6,000 (10,000)Total $735,500 $198,000 $91,000The following additional information is relevant.1. One week before the acquisitions, Punto Company had advanced $10,000 to Sara Companyand $5,000 to Rob Company. Sara Company recorded an increase to Accounts Payable for its advance, but Rob Company had not recorded the transaction.2. On the date of acquisition, Punto Company owed Sara Company $12,000 for purchases on account, and Rob Company owed Punto Company $3,000 and Sara Company $6,000 for suchpurchases. The goods purchased had all been sold to outside parties prior to acquisition.3. Punto Company exchanged 13,400 shares of its common stock with a fair value of $12 pershare for 95% of the outstanding common stock of Sara Company. In addition, stock issuefees of $4,000 were paid in cash. The acquisition was accounted for as a purchase.4. Punto Company paid $50,000 cash for the 85% interest in Rob Company.5. Three thousand dollars of Sara Company’s notes payable and $9,500 of Rob Company’snotes payable were payable to Punto Company.6. Assume that for Sara, any difference between book value and the value implied by thepurchase price relates to subsidiary land. However, for Rob, assume that any excess ofbook value over the value implied by the purchase price is due to overvalued buildings.A. Give the book entries to record the two acquisitions in the accounts of Punto Company.B. Prepare a consolidated balance sheet workpaper immediately after acquisition.C. Prepare a consolidated balance sheet at the date of acquisition for Punto Company andits subsidiaries.

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