On January 1, 2018, Perry Company purchased 80% of Selby Company for $960,000. At that time Selby had capital stock outstanding of $400,000 and retained earnings of $400,000. The fair value of Selby Company?s assets and liabilities is equal to their book value except for the following:

One-half of the inventory was sold in 2018; the remainder was sold in 2019. At the end of 2018, Perry Company had in its ending inventory $54,000 of merchandise it had purchased from Selby Company during the year. Selby Company sold the merchandise at 20% above cost. During 2019, Perry Company sold merchandise to Selby Company for $300,000 at a markup of 20% of the selling price. At December 31, 2019, Selby still had merchandise that it purchased from Perry Company for $78,000 in its inventory. Financial data for 2019 are presented here:

Required:

A. Prepare the consolidated statements workpaper for the year ended December 31, 2019.

B. Calculate consolidated retained earnings on December 31, 2019, using the analytical or t-account approach.

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Book Value Fair Value Inventory Plant and Equipment (10-year life) $155,000 600,000 $230,000 800,000 Perry Company Selby Company Sales $1,385,000 $ 720,000 Equity in Subsidiary Income 208,000 Total Revenue 1,593,000 720,000 Cost of Goods Sold: Beginning Inventory 210,000 155,000 Purchases 875,000 360,000 Cost of Goods Available 1,085,000 515,000 Less: Ending Inventory 400,000 225,000 Cost of Goods Sold 685,000 290,000 Other Expenses Total Cost and Expense 225,000 170,000 910,000 460,000 $ 683,000 $ 260,000 $ 450,000 Net Income 1/1 Retained Earnings $1,472,700 Net Income 683,000 260,000 Dividends Declared (40,000) (30,000) $ 680,000 $ 65,000 12/31 Retained Earnings $2,115,700 $ 90,000 Cash Accounts Receivable (net) 297,000 85,000 Inventory 400,000 225,000 Investment in Selby Company Plant and Equipment (net) 1,184,000 880,000 540,000 Other Assets (net) 384,000 230,000 Total Assets $3,235,000 $1,145,000 Accounts Payable $ 24,300 $ 25,000 Other Liabilities 95,000 40,000 Common Stock 1,000,000 400,000 Retained Earnings Total Liabilities and Equity 2,115,700 680,000 $3,235,000 $1,145,000