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McKinney Enterprises acquired Pottsboro, Inc. as a wholly-owned subsidiary on January 1, 2019 paying $1,750,000. The $440,000 excess of cost over book value of Pottsboros

McKinney Enterprises acquired Pottsboro, Inc. as a wholly-owned subsidiary on January 1, 2019 paying $1,750,000. The $440,000 excess of cost over book value of Pottsboros net assets was partly attributable to a patent undervalued by $210,000. The patent has a 10-year life. The remaining excess is considered goodwill. The parent uses the cost method of pre-consolidation Equity investment bookkeeping. The separate financial statements of the two companies for 2022 are presented below. Neither company issued additional shares after the acquisition Pottsboro by McKinney.

McKinney Enterprises

Pottsboro, Inc.

Sales revenue

$3,100,000

$440,000

Cost of goods sold

-1,580,000

-252,000

Gross profit

1,520,000

188,000

Operating expenses

-485,000

-68,000

Dividend income

42,000

0

Net Income

$1,077,000

$120,000

Retained Earnings, 1/1/22

$1,700,000

$750,000

Net income

1,077,000

120,000

Dividends

-65,000

-42,000

Retained Earnings, 12/31/22

$2,712,000

$828,000

Cash and receivables

$535,000

$501,000

Inventory

758,000

840,000

Equity investment

1,750,000

Property, plant & equipment (Net)

4,596,000

1,205,480

Total Assets

$7,639,000

$2,546,480

Accounts payable

$265,000

$182,430

Accrued liabilities

458,000

272,390

Notes payable

780,000

603,500

Common stock

460,000

204,540

Additional paid-in capital

2,964,000

455,620

Retained Earnings, 12/31/22

2,712,000

828,000

Total Liabilities and Equities

$7,639,000

$2,546,480

Required:

a. What was Pottsboro, Inc.s retained earnings balance on the acquisition date?

b. Prepare all necessary consolidation entries for 2022 consolidated financial statements.

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