Parsons Company acquired 90% of the outstanding common stock of Shea Company on June 30, 2019, for $426,000. On that date, Shea Company had retained earnings in the amount of $60,000, and the fair value of its recorded assets and liabilities was equal to their book value. The excess of implied over the fair value of the recorded net assets was attributed to an unrecorded manufacturing formula held by Shea Company, which had an expected remaining useful life of five years from June 30, 2019. Financial data for 2021 are presented here:

On December 31, 2019, Parsons Company sold equipment (with an original cost of $100,000 and accumulated depreciation of $50,000) to Shea Company for $97,500. This equipment has since been depreciated at an annual rate of 20% of the purchase price. During 2020 Shea Company sold land to Parsons Company at a profit of $15,000.

The inventory of Parsons Company on December 31, 2020, included goods purchased from Shea Company on which Shea Company recognized a profit of $7,500. During 2021, Shea Company sold goods to Parsons Company for $375,000, of which $60,000 was unpaid on December 31, 2021. The December 31, 2021, inventory of Parsons Company included goods acquired from Shea Company on which Shea Company recognized a profit of $10,500.

Required:

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

B. Prepare a schedule to calculate consolidated retained earnings on December 31, 2021, using an analytical or t-account approach.

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Parsons Company Shea Company $1,120,000 Sales $2,555,500 Dividend Income 54,000 Total Revenue 2,609,500 1,120,000 Cost of Goods Sold 1,730,000 690,500 251,000 Expenses 654,500 Total Cost and Expense 2,384,500 941,500 $ 225,000 $ 595,000 $ 178,500 $ 139,500 Net Income 1/1 Retained Earnings Net Income 225,000 178,500 Dividends Declared (100,000) $ 720,000 $ 119,500 (60,000) $ 258,000 $ 132,500 12/31 Retained Earnings Cash Accounts Receivable 342,000 125,000 Inventory 362,000 201,000 Other Current Assets 40,500 13,000 Land 150,000 Investment in Shea Company 426,000 Property and Equipment Accumulated Depreciation 825,000 241,000 (207,000) (53,500) $ 659,000 Total Assets $2,058,000 Parsons Company Shea Company Accounts Payable Other Liabilities $ 295,000 43,000 1,000,000 32,000 19,000 Capital Stock Additional Paid-in Capital Retained Earnings Total Liabilities and Equity 300,000 50,000 258,000 $ 659,000 720,000 $2,058,000