Question

On January 1, 2017, Panther, Inc., issued securities with a total fair value of $636,000 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 $356,000, the fair value of its trademarks was assessed to be $80,000 more than their carrying amounts. Additionally, Stark's patented technology was undervalued in its accounting records by $200,000. 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 $125,000 for $250,000. As of December 31, 2017, Panther had resold 72 percent of this inventory. In 2018, Panther bought from Stark $191,000 of inventory that had an original cost of $95,500. At the end of 2018, Panther held $51,600 (transfer price) of inventory acquired from Stark, all from its 2018 purchases. During 2018, Panther sold Stark a parcel of land for $120,300 and recorded a gain of $21,100 on the sale. Stark still owes Panther $82,400 (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 $ (412,000) 216,200 92,600 Panther, Inc. (943,700) 406,100 222,200 (21,100) (66,300) (402,800) Revenues Cost of goods sold Other operating expenses Gain on sale of land Equity in Stark 's earnings 0 $(103,200) Net income Retained earnings 1/1/18 Net income (383,500) (402,800 110,100 $ (335,300) (103,200 41,500 Dividends declared (676,200) 157,000 477,900 849,200 Retained earnings 12/31/18 (397,000) $ 209,000 148,500 Cash and receivables Inventory Investment in Stark Trademarks Land, buildings, and equip. (net) Patented technology 78,100 376,900 168,200 981,700 $ 2,465,800 $ (1,046,200) (402,000) (341,400 (676,200) 980,700 $ (314,600 (221,000) (48,100 (397,000) Total assets Liabilities Common stock Additional paid-in capital Retained earnings 12/31/18 Total liabilities and equity (2,465,800) $ (980,700) a. Show how Panther computed its $66,300 equity in Stark's earnings balance. b. Prepare a 2018 consolidated worksheet for Panther and Stark

Answer 1

Part A

Stark reported net income	(103200)
Patented technology amortization (200000/8)	25000
Beginning inventory gross profit recognized (250000*(1-72%))*((250000-125000)/250000)	(35000)
Ending inventory gross profit deferred (51600*((191000-95500)/191000)	25800
Deferral of land gain on sale	21100
Equity in Stark’s earnings	$(66300)

Part B

PANTHER AND STARK

Consolidation Worksheet

Year Ending December 31, 2018

Accounts	Panther	Stark	Consolidation entries		Consolidated
			Debit	Credit
Revenues	(943700)	(412000)	191000		(1164700)
Cost of goods sold	406100	216200	25800	226000	422100
Other operating expenses	222200	92600	25000		339800
Gain on sale of land	(21100)		21100		0
Investment income	(66300)		66300		0
Net income	(402800)	(103200)			(402800)
Retained earnings 1/1	(383500)	(335300)	335300		(383500)
Net income	(402800)	(103200)			(402800)
Dividends declared	110100	41500		41500	110100
Retained earnings 12/31	(676200)	(397000)			(676200)
Cash and receivables	157000	209000		82400	283600
Inventory	477900	148500		25800	600600
Investment in Stark	849200		41500	890700	0
Trademarks		78100	80000		158100
Land, buildings, and equipment (net)	981700	376900		21100	1337500
Patented technology		168200	175000	25000	318200
Total assets	2465800	980700			2698000
Liabilities	(1046200)	(314600)	82400		(1278400)
Common stock	(402000)	(221000)	221000		(402000)
Additional paid-in capital	(341400)	(48100)	48100		(341400)
Retained earnings	(676200)	(397000)			(676200)
Total liabilities & stockholders’ equity	(2465800)	(980700)	1312500	1312500	(2698000)

191000+(250000*(1-72%))*((250000-125000)/250000) = 226000

(200000/8) = 25000

849200+41500 = 890700

200000-25000 =175000