On January 1, 2019, Palmer Company acquired a 90% interest in Stevens Company at a cost of $1,000,000. At the purchase date, Stevens Company?s stockholders? equity consisted of the following:

Common stock.............................$500,000

Retained earnings..........................190,000

An examination of Stevens Company?s assets and liabilities revealed the following at the date of acquisition:

Additional Information?Date of Acquisition

Stevens Company?s equipment had an original life of 15 years and a remaining useful life of 10 years. All the inventory was sold in 2019. Stevens Company purchased its bonds payable on the open market on January 10, 2019, for $150,000 and recognized a gain of $55,556. Palmer Company uses the partial equity method to record its investment in Stevens Company. Financial statement data for 2021 are presented here:

Required:

A. Prepare in general journal form the workpaper entry to allocate and depreciate the difference between book value and the value implied by the purchase price in the December 31, 2019, consolidated statements workpaper.

B. Prepare a consolidated financial statements workpaper for the year ended December 31, 2021.

C. Prepare in good form a schedule or t-account showing the calculation of the controlling interest in consolidated net income for the year ended December 31, 2021. If you completed Problem 5-5, a comparison of the consolidated balances in this problem with those you obtained in Problem 5-5 will demonstrate that the method (cost or partial equity) used by the parent company to record its investment in a consolidated subsidiary has no effect on the consolidated balances.

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Book Value Fair Value Cash Accounts receivable Inventories Equipment |Accumulated depreciation-equipment Land Bonds payable Other $ 90,726 $ 90,726 200,000 200,000 160,000 210,000 390,000 (130,000) 300,000 (100,000) 190,000 (205,556) 290,000 (150,000) 54,830 $690,000 54,830 $955,556 Total Palmer Stevens Company Company Sales $620,000 $340,000 Cost of sales 430,000 240,000 Gross margin 190,000 100,000 Depreciation expense 30,000 20,000 Other expenses 60,000 35,000 Income from operations 100,000 45,000 Equity in subsidiary income 40,500 $140,500 Net income $ 45,000 1/1 Retained earnings $315,600 $210,000 Net income 140,500 45,000 456,100 255,000 Dividends (120,000) $336,100 (35,000) 12/31 Retained earnings $220,000 Palmer Stevens Company $ 201,200 Company Cash $151,000 Accounts receivable 221,000 173,000 Inventories 100,400 81,000 Investment in Stevens Company 1,027,000 Equipment 450,000 300,000 Accumulated depreciation-equipment (300,000) (140,000) Land 360,000 290,000 Total assets $2,059,600 $855,000 $ 323,500 Accounts payable Bonds payable $135,000 400,000 Common stock 1,000,000 500,000 Retained earnings Total liabilities and equity 336,100 220,000 $2,059,600 $855,000