On January 1, 2010, Perry Company purchased 80% of Selby Company for $960,000. At that time Selby had capital stock outstanding of $400,000 and retained earnings of $400,000. The fair value of Selby Company’s assets and liabilities is equal to their book value except for the following:

One-half of the inventory was sold in 2010; the remainder was sold in 2011. At the end of 2010, Perry Company had in its ending inventory $54,000 of merchandise it had purchased from Selby Company during the year. Selby Company sold the merchandise at 20% above cost. During 2011, Perry Company sold merchandise to Selby Company for $300,000 at a markup of 20% of the selling price. At December 31, 2011, Selby still had merchandise that it purchased from Perry Company for $78,000 in its inventory.

Financial data for 2011 are presented here:

Required:
A. Prepare the consolidated statements workpaper for the year ended December 31, 2011.
B. Calculate consolidated retained earnings on December 31, 2011, using the analytical or t-account approach.
C. If you completed Problem 6-14, compare the consolidated balances obtained in requirement A with those obtained in thoseproblems.

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Fair Value Book Value $230,000 800,000 $155,000 600,000 Inventory Plant and Equipment (10-year life) Perry Company 1,385,000 153.600 1,538,600 Company 720,000 720,000 Sales Equity in Subsidiary Income Total Revenue Cost of Goods Sold Beginning Inventory 210,000 875,000 1,085,000 400,000 685,000 225,000 910,000 628,600 155,000 360,000 515,000 225,000 290,000 170,000 460,000 0 260,000 Purchases Cost of Goods Available Less: Ending Inventory Cost of Goods Sold Other Expenses Total Cost and Expense Net Income 1/1 Retained Earnings Net Income Dividends Declared 12/31 Retained Earnings 450,000 260,000 40,000) (30,000) $$2.008,100 680,000 $65,000 85,000 225,000 1,419,500 628,600 Cash Accounts Receivable Inventory Investment in Selby Company Plant and Equipment (net) 90,000 297,000 400,000 1,076,400 880,000 384,000 $3,127 400 540,000 230,000 $1,145,000 Other Assets Total Assets Accounts Payable Other Current Liabilities Common Stock Retained Earnings 24,300 95,000 1,000,000 2,008,100 3,127,400 25,000 40,000 400,000 680,000 1,145,000 Total Liabilities and Equity