Pun Corporation acquired 80 percent of Set Corporation’s preferred stock for $175,000 and 90 percent of Set’s common stock for $630,000 on July 1, 2011. Set’s stockholders’ equity on December 31, 2011, was as follows (in thousands):
Stockholders’ Equity
9% preferred stock, cumulative, nonparticipating,
$100 par, call price $105 ………………………… $200
Common stock, $10 par …………………………………… 500
Paid-in capital in excess of par ……………………………… 40
Retained earnings …………………………………………… 160
Total stockholders’ equity …………………………………. $900
Set had net income of $24,000 in 2010 and $46,000 in 2011, but declared no dividends in either year. Assume that preferred dividends accrue ratably throughout each year and that Set’s net assets were fairly valued on July 1, 2011.
REQUIRED
1. Determine the account balances of Pun Corporation’s investments in Set’s preferred and common stocks at December 31, 2011, on the basis of a one-line consolidation.
2. Prepare workpaper entries to consolidate the balance sheets of Pun and Set at December 31, 2011.