On January 1, 2011, Palmer Company acquired a 90% interest in Stevens Company at a cost of $1,000,000. At the purchase date, Stevens Company’s stockholders’ equity consisted of the following:

Common stock.........$500,000

Retained earnings......190,000

An examination of Stevens Company’s assets and liabilities revealed the following at the date of acquisition:

Additional Information—Date of Acquisition
Stevens Company’s equipment had an original life of 15 years and a remaining useful life of
10 years. All the inventory was sold in 2011. Stevens Company purchased its bonds payable on
the open market on January 10, 2011, for $150,000 and recognized a gain of $55,556. Palmer
Company uses the complete equity method to record its investment in Stevens Company.
Financial statement data for 2013 are presented on the next page.

Required:
A. Prepare in general journal form the workpaper entry to allocate and depreciate the difference between book value and the value implied by the purchase price in the December 31, 2011, consolidated statements workpaper.
B. Prepare a consolidated financial statements workpaper for the year ended December 31, 2013.
C. Prepare in good form a schedule or t-account showing the calculation of the controlling interest in consolidated net income for the year ended December 31,2013.

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Book Value Fair Value Cash Accounts receivable Inventories Equipment Accumulated depreciation-equipment Land Bonds payable Other 90,726 200,000 160,000 300,000 (100,000) 190,000 (205,556) 54,830 690,000 90,726 200,000 210,000 390,000 (130,000) 290,000 (150,000) 54,830 955.556 Total Palmer Company Sales Cost of sales Gross margin Depreciation expense Other expenses Income from operations Equity in subsidiary income Net income 620,000 430,000 190,000 30,000 60,000 100,000 35,100 135,100 Slevens Company $340,000 240,000 100,000 20,000 35,000 45,000 45,000 209,800 135,100 344,900 (120,000) 224,900 1/1 Retained earnings Net income $210,000 45,000 255,000 (35,000) $220,000 Dividends 12/31 Retained earnings Palmer CompanySlevens Company Cash Accounts receivable Inventories Investment in Stevens Company Equipment Accumulated depreciation-equipment Land $151,000 173,000 81,000 201,200 221,000 100,400 915,800 450,000 (300,000) 360,000 $1.948,400 300,000 (140,000) 290,000 $855,000 Total assets Accounts payable Bonds payable 323,500 400,000 1,000,000 224,900 1,948,400 $135,000 Common stock Retained earnings 500,000 220,000 855,000 Total liabilities and equity