Several years ago Puma Athletics acquired all of the outstanding stock of Serengeti Footwear. The acquisition cost was \($40\) million in excess of Serengeti's book value of \($10\) million, attributed to indefinite lived brand names with a fair value of \($8\) million, and goodwill. The brand names are unimpaired, but the good- will was impaired by \($2\) million as of the beginning of the current year. There is no goodwill impairment in the current year. The following information relates to intercompany transactions: 

• Puma's beginning inventory includes \($500,000\) of intercompany profit on goods purchased from Serengeti. Puma made no intercompany purchases during the current year and has no ending inventory of goods purchased from Serengeti. Serengeti's ending inventory includes \($300,000\) of intercompany profit on purchases of \($4,000,000\) from Puma. 

• Serengeti's other expenses include a loss of \($200,000\) on an intercompany sale of land to Puma.

• Puma’s other income reflects a \($700,000\) gain on the sale of machinery to Serengeti at the beginning of the year. At the date of sale, the machinery had a remaining life of five years; it is being straight-line depreciated.
• Several years ago, Puma recorded a gain of \($250,000\) on land sold to Serengeti for \($600,000.\) Serengeti sold the land to an outside party during the year for \($800,000.\) The gain is reflected in Serengeti’s other income account.
The end-of-year trial balances of Puma and Serengeti are below. Puma uses the complete equity method to account for its investment in Serengeti on its own books.

Required

a. Prepare a schedule to calculate Puma’s equity in net income of Serengeti, reported on its own books at \($1,290,000.\)

b. Prepare a schedule to calculate Puma’s investment in Serengeti, reported on its own books at \($64,540,000.\)

c. Prepare a working paper to consolidate the trial balances of Puma and Serengeti at the end of the current year. Label your eliminating entries (C), (I), (E), and (R).

d. Present the consolidated income statement and balance sheet of Puma and its subsidiary, for the current year.

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(in thousands) Cash and receivables. Inventories Land 150,000 Puma Dr (Cr) $ 10,000 Serengeti Dr (Cr) $ 4,000 85,000 200,000 120,000 Plant and equipment, net. 600,000 380,000 Investment in Serengeti 64,540 Liabilities.... (750,250) (561,800) Capital stock (2,000) (1,500) Retained earnings, beginning. (267,000) (24,500) Dividends.. 1,000 Sales revenue. (350,000) (73,000) Other income (5,000) (2,000) Equity in net income. (1,290) Cost of sales.... 275,000 47,000 Operating expenses. 70,000 24,000 Other expenses Total.... 5,000 2,800 0 $ 0