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On January 1, 2017, Perez Company purchased 90% of the capital stock of Sanchez Company...

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Accounting

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On January 1, 2017, Perez Company purchased 90% of the capital stock of Sanchez Company for $85,000. Sanchez had capital stock of $70,000 and retained earnings of $12,000 at that time. On December 31, 2021, the trial balances of the two companies were as shown below. Any difference between book value and the value implied by the purchase price relates to goodwill. A. What method is being used by Perez to account for its investment in Sanchez? How can you tell? B. Prepare a workpaper for the preparation of consolidated financial statements on December 31, 2021. Perez Company and Subsidiary Consolidated Statements Workpaper For the Year Ended December 31, 2021 Eliminating Entries 2 3 Noncontrolling Consolidated Interest Balance Dr. Cr. Perez Sanchez Company Company 5 Income Statement 5 Sales 110,000 42,000 Dividend Income 10,800 3 Total Revenue 120,800 42,000 Cost of Goods Sold Inventory 1/1 14,000 8,000 Purchases 84,000 20,000 2 Available for sale 98,000 28,000 - Inventory 12/31 40,000 15,000 Cost of Goods Sold 58,000 13,000 5 Other Expenses 10,000 16,000 5 Total Cost and Expen: 68,000 29,000 Net Income 52,800 13,000 Noncontrolling Interest Net Income to Retained Earnings 52,800 13,000

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