Question

On January 1, 2020, Panther, Inc., issued securities with a total fair value of $557,000 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 $315,000, the fair value of its trademarks was assessed to be $55,000 more than their carrying amounts. Additionally, Stark's patented technology was undervalued in its accounting records by $187,000. The trademarks were considered to have indefinite lives, and the estimated remaining life of the patented technology was eight years. In 2020, Stark sold Panther inventory costing $80,000 for $160,000. As of December 31, 2020, Panther had resold 62 percent of this inventory. In 2021, Panther bought from Stark $156,000 of inventory that had an original cost of $78,000. At the end of 2021, Panther held $42,200 (transfer price) of inventory acquired from Stark, all from its 2021 purchases. During 2021, Panther sold Stark a parcel of land for $98,000 and recorded a gain of $17,600 on the sale. Stark still owes Panther $68,400 (current liability) related to the land sale. At the end of 2021, Panther and Stark prepared the following statements for consolidation. Stark Corporation $ (371,000) 194,700 83,400 Revenues Cost of goods sold Other operating expenses Gain on sale of land Equity in Stark's earnings Net income Retained earnings, 1/1/21 Net income Dividends declared Panther, Inc. $ (783,300) 336,700 184,300 (17,600) (61,225) $ (341,125) $ (371,500) (341,125) 93,200 $ (92,900) $ (301,600) (92,900) 30,000

Answer 1

a.

Stark reported net income	-92900
Patented technology amortization (187000/8)	23375
Beginning inventory gross profit recognized (160000*(1-62%))*((160000-80000)/160000)	-30400
Ending inventory gross profit deferred (42200*((156000-78000)/156000)	21100
Deferral of land gain on sale	17600
Equity in Stark’s earnings	-61225

b.

Accounts	Panther	Stark	Consolidation entries	Consolidated
			Debit	Credit
Revenues	-783300	-371000	156000		-998300
Cost of goods sold	336700	194700	21100	186400	366100
Other operating expenses	184300	83400	23375		291075
Gain on sale of land	-17600		17600		0
Investment income	-61225		61225		0
Net income	-341125	-92900			-341125
Retained earnings 1/1	371500	301600	301600		371500
Net income	-341125	-92900			-341125
Dividend declared	93200	30000		30000	93200
Retained earnings 12/31	-619425	-364500			-619425
Cash and receivables	118000	170000		68400	219600
Inventory	359600	121200		21100	459700
Investment in Stark	702400	0	30000	732400	0
Trademarks	0	63800	55000		118800
Land, buildings, and equipment (net)	738100	308000		17600	1028500
Patented technology	0	137500	163625	23375	277750
Total Assets	1918100	800500			2104350
Liabilities	-587175	-254650	68400		-773425
Common stock	-400000	-135000	135000		-400000
Additional paid-in capital	-311500	-46350	46350		-311500
Retained earnings	-619425	-364500			-619425
Total liabilities & stockholders’ equity	-1918100	-800500	1079275	1079275	-2104350