Peg Corporation owns 90 percent of the voting stock of Sup Corporation and 25 percent of the voting stock of Ell Corporation. The 90 percent interest in Sup was acquired for $18,000 cash on January 1, 2011, when Sup’s stockholders’ equity was $20,000 ($18,000 capital stock and $2,000 retained earnings). Peg’s 25 percent interest in Ell was purchased for $7,000 cash on July 1, 2011, when Ell’s stockholders’ equity was $24,000 ($15,000 capital stock, $6,000 retained earnings, and $3,000 current earnings—first half of 2010). The difference between fair value and book value is due to unrecorded patents and is amortized over 10 years. Adjusted trial balances of the three associated companies at December 31, 2011, are as follows:
1. Reconstruct the journal entries that were made by Peg Corporation during 2011 to account for its investments in Sup and Ell Corporations.
2. Prepare an income statement, a retained earnings statement, and a balance sheet for Peg Corporation for December 31, 2011.
3. Prepare consolidation workpapers (trial balance format) for Peg and Subsidiaries for 2011.
4. Prepare consolidated financial statements other than the cash flows statement for Peg Corporation and Subsidiaries for the year ended December 31,2011.
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