Reference no: EM132494104
Question - 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.
Panther, Inc. Stark Corporation Revenues $(870,500) $(395,000)
Cost of goods sold 374,500 207,300
Other operating expenses 205,000 88,800
Gain on sale of land (19,500) 0
Equity in Stark's earnings (61,500) 0
Net income $(372,000) $(98,900)
Retained earnings 1/1/18 $(378,000) $(321,200)
Net income (372,000) (98,900)
Dividends declared 101,600 37,000
Retained earnings 12/31/18$(648,400) $(383,100)
Cash and receivables $138,000 $190,000
Inventory 420,200 135,200
Investment in Stark 770,700 0
Trademarks 0 71,200
Land, buildings, and equip. (net) 862,900 343,600
Patented technology 0 153,300
Total assets $2,191,800 $893,300
Liabilities$(812,900) $(298,000)
Common stock (400,000) (185,000)
Additional paid-in capital (330,500) (27,200)
Retained earnings 12/31/18 (648,400) (383,100)
Total liabilities and equity $(2,191,800) $(893,300)
Required -
1. Show how Panther computed its $61,500 equity in Stark's earnings balance.
2. Prepare the 2018 consolidated worksheet for Panther and Stark.