Reference no: EM132506542

Par Corporation acquired a 70 percent interest in Sol Corporation's common stock on January 1, 2011, for $490,000 cash. The stockholders' equity of Sol on this date consisted of $500,000 capital stock and $100,000 retained earnings. The difference between the fair value of Sol and the underlying equity acquired in Sol was assigned $5,000 to Sol's undervalued inventory, $14,000 to overvalued buildings, $21,000 to undervalued equipment, and remaining amount to goodwill.

The undervalued inventory items were sold during 2011, and the overvalued buildings and undervalued equipment had remaining useful lives of seven years and three years, respectively. Depreciation is straight line. At December 31, 2011, Sol's accounts payable include $10,000 owed to Par. Separate financial statements for Par and Sol for 2011 are summarized as follows (in thousands):

income and Retaind earning statement:

Parent subsidiary

Sales                             800                700

income for sub                   60.2

gain on equipment                  10

cost of sales                    (300)            (400)

Depreciation exp               (155)               (60)

other expenses                (160)              (140)

net income                        255.2            (100)

Add: RE                            300                   100

Deduct: dividends            (200)                  (50)

RE                                 355.2                  150

Balance sheet :

cash                                   96                 60

account receivable                  100              70

dividends receivable                   14

inventories                               150            100

other current assets                   70              30

land                                        50               100

buliding-net                                 140            160

equipment- net                           570                  330

investment in sub                         512.2

total assets                                1,705.2            850

Account payable                           200                85

dividends payable                          100                20

other liabilities                               50                95

capital stock, 10$ par                 1,000                500

Retained Earnings                         355.2              150

total equities                                 1,705.2          850

Question1 : Using equity method, Prepare the required elimination entries on December 31, 2011. Show your computations