Terrier Corporation was created on January 1, 20X2, and quickly became successful. On January 1, 20X5, the owner sold 75 percent of the stock to Richards Company for \(\$ 12,000\) over book value. The differential was attributed to equipment that had a remaining economic life of eight years at the date Richards purchased controlling ownership. Richards has continued to operate the subsidiary as a separate legal entity and uses the equity method in recording investment income.

Trial balances for Richards Company and Terrier Corporation on December 31, 20X6, are as follows:

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a. Prepare a three-part consolidation workpaper for 20X6 in good form.

b. Prepare a consolidated income statement, balance sheet, and statement of changes in retained earnings for 20X6.

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Richards Company Item Debit Credit Cash and Receivables $ 135,500 Terrier Corporation Debit $ 80,000 Credit Inventory 240,000 100,000 Land 80.000 20.000 Buildings and Equipment 500.000 150,000 Investment in Terrier Corporation Stock 151,500 Cost of Goods Sold 500.000 250.000 Wage Expense 45,000 35.000 Depreciation Expense 25.000 15.000 Other Expenses 30,000 40.000 Dividends Declared 50.000 20,000 Accumulated Depreciation $ 155,000 $ 75,000 Accounts Payable 70.000 35.000 Notes Payable 200,000 50.000 Common Stock Additional Paid-In Capital Retained Earnings Sales Income from Subsidiary 300.000 40.000 60.000 35,000 228.500 75.000 700,000 400.000 43,500 $1,757,000 $1,757,000 $710,000 $710,000