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, 2014, using the analytical or t-account approach.

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Fair Value Book Value $230,000 $155,000 Inventory Plant and Equipment (10-year life) 800,000 600,000 Perry Company Selby Company Sales $1,385,000 $ 720,000 Equity in Subsidiary Income 153,600 Total Revenue 1,538,600 720,000 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 225,000 170,000 Total Cost and Expense 910,000 460,000 Net Income $ 628,600 $ 260,000 1/1 Retained Earnings 1,419,500 450,000 Net Income 628,600 260,000 Dividends Declared (40,000) (30,000) $ 680,000 $ 65,000 12/31 Retained Earnings $2,008,100 $ 90,000 Cash Accounts Receivable 297,000 85,000 Inventory Investment in Selby Company Plant and Equipment (net) 400,000 225,000 1,076,400 880,000 540,000 Other Assets 384,000 230,000 Total Assets $3,127,400 $1,145,000 Accounts Payable 24,300 25,000 Other Current Liabilities 95,000 40,000 Common Stock 1,000,000 400,000 Retained Earnings Total Liabilities and Equity 2,008,100 680,000 $3,127,400 $1,145,000