COMPREHENSIVE — ACQUIRED SUBSIDIARY Consolidation Worksheet: Year After Year of Equipment Transfer — Upstream (60% ownership); Multiple Year Inventory Transfers — Down¬

stream On 1/1/05, Park Inc. acquired 60% of the outstanding common stock of Stall Inc. for

$153,000 cash. Park incurred an additional $12,000 of direct costs. At the time. Stall’s common stock had a book value of $34 per share. Stall’s land was undervalued by $50,000, and its 5%

long-term debt (due 12/31/08) had a current value of $40,000 less than its book value.

On 1/3/06, Stall sold office equipment to Park. Information related to this sale follows:
Sales Cost .
price .
Less — Accumulated depreciation Gain .
$27,000 $ 44,000 (32,000) 12,000 $15,000 Original life used by subsidiary . 4 years Remaining life assigned by Park . 3 years Comparative financial statements are as follows:
Income Statement (2006)
Sales Cost Expenses of .
sales .
.
Intercompany Accounts Equity in net income (of Stall) .
Intercompany Intercompany Intercompany sales cost mgt.
of fee .
sales income .
.
Intercompany mgt. fee expense .
Intercompany Net Income gain .
.
Balance Sheet (as of 12/31/06)
Inventory:
Investment Land Intercompany From .
vendors in subsidiary .
.
.
Accumulated Other Buildings assets and .
depreciation equipment .
.
Total Assets .
Current Long-term liabilities debt .
.
Common stock, $10 par value .
Common stock, $20 par value .
Retained Less — Treasury earnings stock .
(at cost) (500 shares) . . .
Total Liabilities and Equity .
Dividends declared:' 2005 2006 .
.
Park Inc. Stall Inc.
$ (360,000) 600,000 $ (200,000) 395,000 (226,000) (119,000)
24,000 50,000 (30,000)
36,000 (36,000)
15,000 $ 94,000 $ 55,000 $ 214,000 $ 85,000 5,000 168,000 126,000 45,000 255,000 140,000 (150,000)
(55,000)'
207,000 90,000 $ 820,000 $ 310,000 $ 103,000 220,000 $ 63,500 62,000 250,000 100,000 247,000 105,000 (20,500)'
$ 820,000 $ 310,000 30,000 10,000 41,000 35,000 ‘ The balance was $40,000 at the acquisition date.
The treasury stock was purchased at a very favorable price on 12/31/06.
‘ Assume that all dividends were declared on 12/10 and paid 10 days later.
Additional Information 1. Stall’s 12/31/05 inventory included $17,000 of inventory acquired from Park in 2005. Park’s cost was $14,000. Stall resold this inventory for $23,000 in 2006.
2. Neither entity made any general ledger adjustment for unrealized intercompany gain and profit at the end of 2005 and 2006.
3. In applying the equity method of accounting for 2006, Park recorded $33,000 (60% of $55,000).
4. Because of an overpayment. Park owed Stall $1 1,000 at the end of 2006.
Required 1. Calculate the unrealized gain on the equipment transfer at the end of 2006 and prepare a ma¬
trix analysis to determine the unrealized profit on the current year inventory transfers. (For Module I only: Also make the necessary year-end adjusting entry(ies) for the unrealized gainand profit; adjust the statements accordingly. Prepare an updated analysis of the investment ac¬
count from inception through the end of 2006.)
2. Prepare all consolidation entries as of 12/31/06.
3. Prepare a consolidation worksheet at 12/31/06.