Question

On January 1, 2017, Panther, Inc., issued securities with a total fair value of $588,000 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 $334,000, the fair value of its trademarks was assessed to be $68,000 more than their carrying amounts. Additionally, Stark's patented technology was undervalued in its accounting records by $186,000. 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 $102,500 for $205,000. As of December 31, 2017, Panther had resold 61 percent of this inventory. In 2018, Panther bought from Stark $172,000 of inventory that had an original cost of $86,000. At the end of 2018, Panther held $46,400 (transfer price) of inventory acquired from Stark, all from its 2018 purchases. During 2018, Panther sold Stark a parcel of land for $108,000 and recorded a gain of $19,200 on the sale. Stark still owes Panther $74,800 (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 $ (856,800 ) $ (392,000 ) Cost of goods sold 368,600 205,700 Other operating expenses 201,800 88,100 Gain on sale of land (19,200 ) 0 Equity in Stark's earnings (72,525 ) 0 Net income $ (378,125 ) $ (98,200 ) Retained earnings 1/1/18 $ (377,500 ) $ (318,900 ) Net income (378,125 ) (98,200 ) Dividends declared 103,300 36,500 Retained earnings 12/31/18 $ (652,325 ) $ (380,600 ) Cash and receivables $ 137,000 $ 187,000 Inventory 417,200 133,100 Investment in Stark 762,300 0 Trademarks 0 70,100 Land, buildings, and equip. (net) 856,700 338,300 Patented technology 0 150,900 Total assets $ 2,173,200 $ 879,400 Liabilities $ (791,875 ) $ (282,200 ) Common stock (400,000 ) (180,000 ) Additional paid-in capital (329,000 ) (36,600 ) Retained earnings 12/31/18 (652,325 ) (380,600 ) Total liabilities and equity $ (2,173,200 ) $ (879,400 ) a.Show how Panther computed its $72,525 equity in Stark's earnings balance. b.Prepare a 2018 consolidated worksheet for Panther and Stark.

Show how Panther computed its $72,525 equity in Stark's earnings balance.

	Equity in Stark’s earnings

Prepare a 2018 consolidated worksheet for Panther and Stark. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Amounts in the Debit and Credit columns should be entered as positive. Negative amounts for the Noncontrolling Interest and Consolidated Totals columns should be entered with a minus sign.)

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PANTHER AND STARK Consolidation Worksheet Year Ending December 31, 2018 Consolidation Entries Accounts Panther Stark Debit Credit Consolidated Totals Revenues $(856,800) $(392,000) Cost of goods sold 368,600 205,700 Other operating expenses 201,800 88,100 Gain on sale of land (19,200) 0 Equity in Stark's earnings (72,525) 0 Net income $(378,125) $(98,200) Retained earnings 1/1 $(377,500) $(318,900) Net income (above) (378,125) (98,200) Dividends declared 103,300 36,500 Retained earnings 12/31 $(652,325) $(380,600) Cash and receivables $137,000 $187,000 Inventory 417,200 133,100 Investment in Stark 762,300 0 Trademarks 0 70,100 Land, buildings, and equipment (net) 856,700 338,300 Patented technology 0 150,900 Total assets $2,173,200 $879,400 Liabilities $(791,875) $(282,200) Common stock (400,000) (180,000) Additional paid-in capital (329,000) (36,600) Retained earnings (above) (652,325) (380,600) Total liabilities & stockholders’ equity $(2,173,200) $(879,400)

Answer 1