Question

On January 1, 2017, Panther, Inc., issued securities with a total fair value of $608,000 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 $330,000, the fair value of its trademarks was assessed to be $65,000 more than their carrying amounts. Additionally, Stark's patented technology was undervalued in its accounting records by $213,000. 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 $97,500 for $195,000. As of December 31, 2017, Panther had resold 65 percent of this inventory. In 2018, Panther bought from Stark $169,000 of inventory that had an original cost of $84,500. At the end of 2018, Panther held $45,600 (transfer price) of inventory acquired from Stark, all from its 2018 purchases. During 2018, Panther sold Stark a parcel of land for $106,100 and recorded a gain of $18,900 on the sale. Stark still owes Panther $73,600 (current liability) related to the land sale. At the end of 2018, Panther and Stark prepared the following statements in preparation for consolidation. Stark Corporation $ (386, 000) 202,500 86, 700 Panther, Inc. $ (843, 000) 362, 600 198,500 (18,900) (62, 600) $ (363, 400) (376,500) (363, 400) 99, 300 $ (640, 600) 132,000 402, 000 771,000 $ $ Revenues Cost of goods sold Other operating expenses Gain on sale of land Equity in Stark's earnings Net income Retained earnings 1/1/18 Net income Dividends declared Retained earnings 12/31/18 Cash and receivables Inventory Investment in Stark Trademarks Land, buildings, and equip. (net) Patented technology Total assets Liabilities Common stock Additional paid-in capital Retained earnings 12/31/18 Total liabilities and equity (96, 800) (314, 300) (96, 800) 35,000 (376, 100) 184,000 131,000 $ $ 825, 400 $ $ 2, 130, 400 (764, 600) (400, 000) (325, 200) (640, 600) (2, 130, 400) 69,000 333, 000 148, 600 865, 600 (277, 650) (170, 000) (41, 850) (376, 100) (865, 600) $ $ a. Show how Panther computed its $62,600 equity in Stark's earnings balance. b. Prepare a 2018 consolidated worksheet for Panther and Stark.

Answer 1

Wooking of Allocation of excess value paid over book value anchase price at the time of acquisition Less: Book Valve Excess value paid over book value resso Excess value assigned to trademark 1 Less: Excess value assigned to Patented Technology Remaining value $608,000 $ 330,000 $278,000 $ 65,000 $ 213,000 0 assets acquire 1/1/2017 and their Calculation of amortization Carrying value: Assets Patented Technology Trademark Original value ason ute 012 () 213000 8 4ears 65,000 Amortization per year (A/B) 26,625 Carrying value = Original value - Amortization per year Assets Patented Technology Trademark Total Original value Amortization Book value Amortization Book value as on 1941 in year 2012 as on ligin Yeo 2018 as on 19 213,000 26625 18637526625 169000 65,000 65,000 65,000 278000 26625 251375 556000 234000 calculation of Profit on Inter- Company Inventory sale. Cost of goods sold B | Profit 1=(alb) Pootit Percentage Inventory held I ID=64*100 lie.closing stock (t) closing stock at the year and Profit on. PEED 2017 $195000 $ 97,500 1975000 504 58500 29250 2018 $169000 3 84,500 | 84500 50% 45600 122800 I value of closing inventory in year 2017 06% of units resold by Panther so, 35% remain stock.. 195.000 * 30% = $58500

a Calculation of Panther equity share in stark's earnings balance sid, 675 s Description . Amount Net income of stark during the year 2018 Segos Add: Deferred Profit on Prior year stock as on 1/31/2014 | $ 29250 Less: Deferred Profit on intercompany inventory sale as on (22800) 12/31/2018 Less: Amortization of Patented technology during (26625 the year 2018 Less: Intercompany Profil on sale of land (18900) during the year 2018 Equity $ 69,908) in stark's earnings.

cono leto b) Consolidation work shoot for Panther and stark Elimination Entries Accounts Panther stark Debit Credit Revenues (843000) 326000) csales) 169.000 - 1060000 Cost of goods sold 362600 202 500 CCOGS) 2200 169000 csales) 343300 26625 CCOGSI) Other operating en perse 193500 86,400 (0) 2 314 450 Ganon sale of land (18900) ICE 18900 Equity in stark's earnings ICA) 6960o Net Income $1363400) $(96,800) (363400) (B) 314300l Retained earnings / 11376500)| (314 300) Net Income (above) (363400) (96800) Dividends Declased 99300 35000 Retained Earnings 12/31 $(640,600) $(376, 100) (376500) (363400) 99300 35000 (A)

Balance sheet Assels cash and cells $132.000 $100 hventory $ 402000 $131000 tinent to start $ 10000 2 6625 227600 0 276000 0 $825.00 o 169.000 $333,000 65000 4000 18700 Trademarks lands, Buildings and equip(net) Patented Technology Total Assets 113.9600 o $2130400 (0) 18632526250 I $143.600 865600 308 350 1968650) |$1764600) $(227650) Pay 73600 (400000) (10,000) CB) 870000) (325200) | (41,850) | CB) 41850 C4 00000) |(325200) Liabilities and equity I Liabilities Common stock Additional Paid in Capital Retained earnings 12/31118 (above) Total liability and equity (640600)| (35,100) | 396100 640600) $(3,130,400 $(445,600). 15564.00 1209,300 12334,450
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