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On January 1, 2017, Panther, Inc., issued securities with a total fair value of $569.000 for 100 percent of Stark Corporation's outstanding ownership shares. Stark has long supplied inventory to Panther. The companies expect to achieve synergies with production scheduling and product development with this combination Although Stark's book value at the acquisition date was $329,000, the fair value of its trademarks was assessed to be $64,000 more than their carrying amounts. Additionally. Stark's patented technology was undervalued in its accounting records by $176,000. The trademarks were considered to have indefinite lives, and the estimated remaining life of the patented technology was eight years In 2017, Stark sold Panther inventory costing $95,000 for $190,000. As of December 31, 2017, Panther had resold 74 percent of this inventory. In 2018, Panther bought from Stark $167.000 of inventory that had an original cost of $83,500. At the end of 2018, Panther held $45.100 (transfer price) of inventory acquired from Stark, all from its 2018 purchases During 2018, Panther sold Stark a parcel of land for $104,900 and recorded a gain of $18.700 on the sale. Stark still owes Panther $72,800 (current liability) related to the land sale At the end of 2018, Panther and Stark prepared the following statements in preparation for consolidation

Answer 1

According to the requirement of the question, we have to calculate Equity in Stark's earnings and consolidation entries.

Requirement A:- Show how Panther computed its $57,550 equity in Stark's earnings.

Solution:- Equity in Stark's Earnings

Stark reported Net Income	$(96,100)
Patented technology amortization ($176,000 / 8 years)	$22,000
Beginning Inventory gross profit {$190,000 * (1-74%)} * {($190,000- $95,000) / $190,000}	$(24,700)
Ending Inventory gross profit deferred {$45,100 * ($167,000 - $83,500) / $167,000)	$22,550
Deferred of land gain on sale (given)	$18,700
Equity in Stark's earnings	$(57,550)

Requirement B:- Prepare a 2018 consolidated worksheet for Panther and Stark.

Solution:-

PANTHER AND STARK

Consolidated Worksheet

Year Ending December 31,2018

Consolidated Entries

Accounts	Panther	Stark	Debit	Credit	Consolidated Totals
Revenues	$(833,800)	$(383,000)	$167,000		$(1,049,800)
Cost of Goods Sold	$358,600	$200,900	$22,550 (Calculated above)	$191,700 (Working Note)	$390,350 (Working Note)
Other Operating Expenses	$196,300	$86,000	$22,000 (Working Note)		$304,300 (Working Note)
Gain on Sale of Land	$(18,700)	0	$18,700		0
Equity in Stark's earnings (Investment Income)	$(57,550)	0	$57,550		0
Net income	$(355,150)	$(96,100)			$(355,150)
Retained earnings 1/1	$(376,000)	$(312,000)	$312,000		$(376,000)
Net income (above)	$(355,150)	$(96,100)			$(355,150)
Dividend declared	$97,000	$34,500		$34,500	$97,000
Retained earnings 12/31	$(634,150)	$(373,600)			$(634,150)
Cash and receivables	$129,000	$181,000		$72,800	$237,200 (Working Note)
Inventory	$392,900	$128,900		$22,550 (Calculated above)	$499,250 (Working Note)
Investment in Stark	$719,000	0	$34,500	$753,500	0
Trademarks	0	$67,900	$64,000 (given)		$131,900
Land, Buildings & Equipment (net)	$806,700	$327,700		$18,700	$1,115,700 (Working Note)
Patented technology	0	$146,200	$154,000 ($176,000 -$22,000)	$22,000	$278,200 (Working Note)
Total Assets	$2,047,600	$851,700			$2,262,250
Liabilities	$(690,550)	$(287,450)	$72,800		$(905,200) (Working Note)
Common Stock	$(400,000)	$(165,000)	$165,000		$(400,000)
Additional paid-in Capital	$(322,900)	$(25,650)	$25,650		$(322,900)
Retained earnings (above)	$(634,150)	$(373,600)			$(634,150)
Total Liabilities and Stockholder's earnings	$(2,047,600)	$(851,700)	$1,115,750	$1,115,750	$2,262,250

Working Note:-

Cost of Goods sold = Credit {$167,000 + ($190,000 * (1-74%)} * {($190,000-$95,000) / $190,000} = $191,700

Cost of Goods Sold = Consolidated Totals = $358,600 + $200,900 +$22,550 - $191,700 = $390,350

Other Operating Expenses = $176,000 /8 = $22,000

Other Operating Expenses = Consolidated Totals = $196,300 + $86,000 + $22,000 =$304,300

Cash and Receivables = $129,000 + $181,000 - $72,800 = $237,200

Inventory = $392,900 + $128,900 - $22,550 = $499,250

Land = $806,700 + $327,700 - $18,700 = $1,115,700

Patented technology = $146,200 + $154,000 - $22,000 = $278,200

Liabilities = $690,550 + $287,450 - $72,800 = $905,200

Thank you............