Deferred Tax Effects On January 1, 2005, Pruitt Company issued 25,500 shares of its common stock in exchange for 85% of the outstanding common stock of Shah Company. Pruitt’s common stock had a fair value of $28 per share at that time. Pruitt Company uses the cost method to account for its investment in Shah Company and files a consolidated income tax return. A schedule of the Shah Company assets acquired and liabilities assumed at book values (which are equal to their tax bases) and fair values follows. LO2 Item Book Value/Tax Basis Fair Value Excess Receivables (net) $125,000 $ 125,000 + —0—
Inventory 167,000 195,000 28,000 Land 86,500 120,000 33,500 Plant Assets (net) 467,000 567,000 100,000 Patents 95,000 200,000 105,000 Total $940,500 $1,207,000 $266,500 Current Liabilities $ 89,500 $ 89,500 $ —O—
Bonds Payable 300,000 360,000 60,000 Common Stock 120,000 Other Contributed Capital 164,000 Retained Earnings 267,000 Total $940,000 Additional Information:
1. Pruitt’s income tax rate is 35%.
2. Shah’s beginning inventory was all sold during 2005.
3. Useful lives for depreciation and amortization purposes are:
Plant assets 10 years Patents 8 years Bond premium 10 years 4. Pruitt uses the straight-line method for all depreciation and amortization purposes.

Required:
A. Prepare the stock acquisition entry on Pruitt Company’s books.
B. Assuming Shah Company earned $216,000 and declared a $90,000 dividend during 2005, prepare the eliminating entries for a consolidated statements workpaper on December 31, 2005.
C. Assuming Shah Company earned $240,000 and declared a $100,000 dividend during 2006, prepare the eliminating entries for a consolidated statements workpaper on December 31, 2006.