On January 1,2009, Picante Corporation acquired 100 percent of the outstanding voting stock of Salsa Corporation for $1,765,000 cash. On the acquisition date, Salsa had the following balance sheet:

Cash. $ 14,000 LO1 Accounts receivable .... 100,000 Land. 700,000 Equipment (net). 1,886,000

$2,700,000 Accounts payable ... $ 120,000 Long-term debt. 930,000 Common stock . 1,000,000 Retained earnings . . . 650,000

$2,700,000 At the acquisition date, the following allocation was prepared:

Fair value of consideration transferred. $1,765,000 Book value acquired. 1,650,000 Excess fair value over bookvalue. 115,000 To in-process research and development . $44,000 To equipment (8-yr. remaining life). 56,000 100,000 To goodwill (indefinitelife). $ 15,000 Although at acquisition date Picante had expected $44,000 in future benefits from Salsa’s in- process research and development project, by the end of 2009, it was apparent that the research pro¬ ject was a failure with no future economic benefits.

On December 31, 2010, Picante and Salsa submitted the following trial balances for consolidation:

Picante Salsa Sales.

. $

(3,500,000)

$(1,000,000)

Cost of goods sold.

1,600,000 630,000 Depreciation expense.

540,000 160,000 Subsidiaryincome.

(203,000)

-0-

Net income.

. $

(1,563,000)

$ (210,000)

Retained earnings 1/1/10.

. $

(3,000,000)

$ (800,000)

Netincome.

(1,563,000)

(210,000)

Dividendspaid.

200,000 25,000 Retained earnings 12/31/10.

. $

(4,363,000)

$ (985,000)

Cash.

. $

228,000

$ 50,000 Accounts receivable.

840,000 155,000 Inventory.

900,000 580,000 Investment in Salsa.

2,042,000

-0-

Land.

3,500,000 700,000 Equipment (net).

5,000,000 1,700,000 Goodwill.

290,000

-0-

Total assets.

. $

12,800,000

$ 3,185,000 Accounts payable.

. $

(193,000)

$ (400,000)

Long-termdebt.

(3,094,000)

(800,000)

Common stock.

(5,150,000)

(1,000,000)

Retained earnings 12/31/10.

(4,363,000)

(985,000)

Total liabilities and equities.

. $(12,800,000)

$(3,185,000)

a. Show how Picante derived its December 31,2010, Investment in Salsa account balance.

b. Prepare a consolidated worksheet for Picante and Salsa as of December 31,2010.