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In: Accounting

Parsons Company acquired 90% of the outstanding common stock of Shea Company on June 30, 2019,...

Parsons Company acquired 90% of the outstanding common stock of Shea Company on June 30, 2019, for $426,000. On that date, Shea Company had retained earnings in the amount of $60,000, and the fair value of its recorded assets and liabilities was equal to their book value. The excess of implied over the fair value of the recorded net assets was attributed to an unrecorded manufacturing formula held by Shea Company, which had an expected remaining useful life of five years from June 30, 2019.

Financial data for 2021 are presented here:

Parsons Company

Shea Company

Sales

$2,555,500

$1,120,000

Dividend Income

  54,000

     

Total Revenue

 2,609,500

 1,120,000

Cost of Goods Sold

1,730,000

690,500

Expenses

  654,500

  251,000

 Total Cost and Expense

 2,384,500

 941,500

Net Income

$  225,000

$  178,500

1/1 Retained Earnings

$  595,000

$  139,500

Net Income

225,000

178,500

Dividends Declared

 (100,000)

 (60,000)

12/31 Retained Earnings

$  720,000

$  258,000

Cash

$  119,500

$  132,500

Accounts Receivable

342,000

125,000

Inventory

362,000

201,000

Other Current Assets

40,500

13,000

Land

150,000

Investment in Shea Company

426,000

Property and Equipment

825,000

241,000

Accumulated Depreciation

 (207,000)

  (53,500)

 Total Assets

$2,058,000

$  659,000

Accounts Payable

$  295,000

$32,000

Other Liabilities

43,000

19,000

Capital Stock

1,000,000

300,000

Additional Paid‐in Capital

50,000

Retained Earnings

 720,000

 258,000

 Total Liabilities and Equity

$2,058,000

$  659,000

On December 31, 2019, Parsons Company sold equipment (with an original cost of $100,000 and accumulated depreciation of $50,000) to Shea Company for $97,500. This equipment has since been depreciated at an annual rate of 20% of the purchase price. During 2020 Shea Company sold land to Parsons Company at a profit of $15,000.

The inventory of Parsons Company on December 31, 2020, included goods purchased from Shea Company on which Shea Company recognized a profit of $7,500. During 2021, Shea Company sold goods to Parsons Company for $375,000, of which $60,000 was unpaid on December 31, 2021. The December 31, 2021, inventory of Parsons Company included goods acquired from Shea Company on which Shea Company recognized a profit of $10,500.

Required:

  1. Prepare a consolidated financial statements workpaper for the year ended December 31, 2021.
  2. Prepare a schedule to calculate consolidated retained earnings on December 31, 2021, using an analytical or t‐account approach. (Hint: Due to rounding, you may be out of balance by $1. To avoid this, you should carry decimals until the final calculation.)

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