On January 1, 2012, Parkway, Inc., issued securities with a total fair value of $450,000 for 100 percent of Skyline Corporation's outstanding ownership shares. Skyline has long supplied inventory to Parkway, which hopes to achieve synergies with production scheduling and product development with this combination.

Although Skyline's book value at the acquisition date was $300,000, the fair value of its trademarks was assessed to be $30,000 more than their carrying amounts. Additionally, Skyline's patented technology was undervalued in its accounting records by $120,000. The trademarks were considered to have indefinite lives, and the estimated remaining life of the patented technology was eight years.

In 2012, Skyline sold Parkway inventory costing $30,000 for $50,000. As of December 31, 2012, Parkway had resold only 28 percent of this inventory. In 2013, Parkway bought from Skyline $80,000 of inventory that had an original cost of $40,000. At the end of 2013, Parkway held $28,000 of inventory acquired from Skyline, all from its 2013 purchases.

During 2013, Parkway sold Skyline a parcel of land for $95,000 and recorded a gain of $18,000 on the sale. Skyline still owes Parkway $65,000 related to the land sale.

At the end of 2013, Parkway and Skyline prepared the following statements in preparation for consolidation.

a. Show how Parkway computed its $55,400 equity in Skyline's earnings balance.
b. Prepare a 2013 consolidated worksheet for Parkway and Skyline.

Transcribed Image Text:

Parkway Inc. Skyline Corporation (627,000) $(358,000) 195,000 75,000 Cost of goods sold Other operating expenses. Gain on sale of land Equity in Skyline's earnings 170,000 (18,000) (55,400) Net income S (241.400) (88,000) Retained earnings 1/1/13 Net income Dividends distributed S (314,600) (292,000) (88,000) 2034) S (486,000) (360,000) 241,400) 1),0 Retained earnings 12/31/13 Cash and receivables S 134,000 281,000 598,000 150,000 112,000 Investment in Skyline Trademarks Land, buildings, and equip. (net) Patented technology 637,000 283,000 1) 1,34),)125 Total assets Common stock Additional paid-in capital Retained earnings 12/31/13 (463,000) $(215,000) (120,000) (30,000) 410,000) (486,000)360,000 (1,650,000) $(725,000) Total liabilities and equity