December 31, 2020 PROBLEM 5-5 Workpaper Entries and Consolidated Financial Statements LO 1 106 107 LO 9 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 5500,000 Retained carnings 190,000 An examination of Stevens Company's assets and liabilities revealed the following at the date of acquisition: Book Value Fair Value Cash $ 90,726 $ 90,726 Accounts receivable 200.000 200,000 Inventories 160,000 210,000 Equipment 300,000 390,000 Accumulated depreciation equipment (100,000) (130,000) Land 190,000 290,000 Bonds payable (205,556) (150,000) Other 54,830 Total 56X0,000 $955.556 54,830 Chapter 5 Allocation and Depreciation of Differences between implied and Book Values 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 S55,556. Financial statement data for 2021 are presented here: Sales Cost of sales Gross margin Depreciation expense Other expenses Income from operations Dividend income Net income 1/1 Retained earnings Net income Stevens Company $340,000 240.000 100.000 20,000 35,000 45.000 Palmer Company S620,000 430,000 190,000 30.000 60.000 100,000 31.500 $131.500 $ 297,600 131,500 429,100 (120,000) $ 309.100 $201.200 221.000 100,400 1.000.000 450,000 $ 45,000 $210,000 45,000 255.000 35,000) $220.000 $151.000 173.000 81.000 Dividends 12/31 Retained earnings Cash Accounts receivable Inventories Investment in Stevens Company Equipment Accumulated depreciation-equipment Land Total assets Accounts payable Bonds payable Common stock Retained earnings Total liabilities and equity (300.000) 300,000 (140,000) 290.000 $855.000 $135,000 360.000 $2,032.600 5 323.500 400,000 1,000,000 309.100 $2,032,600 500.000 220.000 $855.000 Required: A. What method is Palmer using to account for its investment in Stevens? How can you tell? B. 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 work paper C. Prepare a consolidated financial statements workpaper for the year ended December 31, 2021. D. Prepare in good form a schedule or t-account showing the calculation of the controlling and noncontrolling interest in consolidated net income for the year ended December 31, 2021