Question

ADVANCED ACCOUNTING CHAPTER 5-PART II On January 1, 2017, Panther, Inc., issued securities with a total fair value of $605,000 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 $337,000, the fair value of its trademarks was assessed to be $70,000 more than their carrying amounts. Additionally, Stark's patented technology was undervalued in its accounting records by $198,000. 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 $105,000 for $210,000. As of December 31, 2017 Panther had resold 71 percent of this inventory. In 2018, Panther bought from Stark $175,000 of inventory that had an original cost of $87.500. At the end of 2018, Panther held $47,200 (transfer price) of inventory acquired from Stark, all from its 2018 purchases. During 2018, Panther sold Stark a parcel of land for $109,900 and recorded a gain of $19,500 on the sale. Stark still owes Panther $76,000 (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 $ (395,000) 207.300 88.800 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 Panther, Inc. (870,500) 374,500 205.000 (19.500) (61.500) (372.000) (378,000) (372 000) 101.600 (648,400) 138,000 420.200 770,700 $ (98,900) $ (321,200) (98.900) 37000 $ (383,100) 190,000 135,200 862.900 2,191,800 (812,900) (400,000) (330.500) (648.400) 2,191.800) 71.200 343.600 153,300 $ 893.300 $ 298,000) (185,000) (27200) (383.100) $ (893,300) $ a. Prepare a 2018 consolidated worksheet for Panther and Stark.

Answer 1

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you. $ Stark reported net income Patented technology amortization Working-1 Beginning inventory gross profit recognized $210,000*29%*50% Ending inventory gross profit deferred Deferral of land gain on sale Equity in Stark's earnings $ $ $ $ -98,900 24,750 -30,450 23,600 19,500 -61,500 Working-1 $ $ $ 605,000 -337,000 268,000 Acquisition-Date Fair Value Allocation Consideration transferred (fair value of shares issued) Book value of subsidiary Fair value in excess of book value Excess fair over book value assigned to: Trade-marks (indefinite life) Patented technology Remaining life of patented technology Annual amortization $ 70,000 $ 198,000 8 years $ 24,750 CONSOLIDATION ENTRIES Entry *G $ 30,450 Retained earnings 1/1 (Stark) Cost of goods sold To remove impact of beginning unrealized gross profit. $ 30,450 Entry S $ $ $ 185,000 27,200 290,750 Common stock (Stark) Additional paid in capital (Stark) Retained earnings 1/1 (Stark, adjusted) $321,200-$30,450 Investment in Stark To remove stockholders' equity accounts of subsidiary. Retained earnings is adjusted for elimination of beginning unrealized gross profit in Entry *G. $ 502,950 Entry A $ $ 70,000 173,250 $ 243,250 Trademarks Patented technology Investment in Stark To recognize excess fair value allocations as of 1/1.Patented technology is adjusted for one prior year of amortization at $24,250 per year. Entry 1 $ 61,500 $ 61,500 Investment income Investment in Stark To remove intra-entity income accrued by parent using the equity method. Entry D $ 37,000 Investment in Stark Dividends declared To eliminate Intra-entity dividends. $ 37,000 Entry E $ 24,750 $ 24,750 Other operating expenses Patented technology To recognize current year amortization expense on patented technology

Entry TI $ 175,000 Revenues Cost of goods sold To eliminate intra-entity inventory transfer for current year. $ 175,000 Entry G $ 23,600 Cost of goods sold Inventory $ 23,600 To defer unrealized inventory gross profit. Amount is computed above. Entry TL $ 19,500 Gain on sale of land Land $ 19,500 To remove gain fromintra-entity transfer of land during current year. Entry P $ 76,000 Accounts payable Accounts receivable To remove intra-entity payable and receivable. $ 76,000 Accounts Revenues Cost of goods sold Panther Stark $ -870,500 $ -395,000 TL $ 374,500 $ 207,300 G Debit S 175,000 23,600 TL Credit Totals $ -1,090,500 $ 175,000 $ 399,950 $ 30,450 $ 318,550 $ - Other operating expenses Gain on sale of land Investment income Net income $ $ $ $ 205,000 $ 88,800 E 19,500 -61,500 - 372,000 $ -98,900 24,750 19,500 61,500 $ - 372,000 Retained earnings 1/1 $ -378,000 $ -321,200 G $ -378,000 30,450 290,750 Net income (above) Dividends declared Retained earnings 12/31 Cash and receivables Inventory Investment in Stark $ $ $ $ $ -372,000 $ -98,900 101,600 $ 37,000 -648,400 $ -383,100 138,000 $ 190,000 420,200 $ 135,200 770,700 372,000 101,600 -648,400 252,000 531,800 - 37,000 $ $ 37,000 $ $ $ 76,000 $ $ 23,600 $ $ 502,950 $ $ 243,250 $ 61,500 $ $ 24,750 $ $ 19,500 $ $ 70,000 173,250 E Trademarks Patented technology Land, buildings, and equipment (net Total assets $ 71,200 A $ 343,600 A $ 153,300 $ 893,300 141,200 492,100 996,700 2,413,800 TL $ $ 862,900 2,191,800 Liabilities Common stock Additional paid-in capital Retained earnings (above) Total liabilities & stockholders' equity $ -812,900 $ -298,000 P $ -400,000 $ -185,000 S $ -330,500 $ -27,200 S $ -648,400 $ -383,100 $ -2,191,800 $ -893,300 76,000 185,000 27,200 $ -1,034,900 $ -400,000 $ 330,500 $ -648,400 $ -2,413,800