On January $1,2024,$ 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:

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

$54,830$

$54,830$

$$Total

$$$$690,000$

$$$$955,556$

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 $2024.$ Stevens Company purchased its bonds payable on the open market on January $10,2024,$ 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 $2026$ are presented here:

Palmer Company

Stevens Company

Sales $$620,000$ $$340,000$

Cost of sales $430,000240,000$

Gross margin $190,000100,000$

Depreciation expense $30,00020,000$

Other expenses $60,00035,000$

Income from operations $100,00045,000$

Equity in subsidiary income $40,5000$

Net income $$140,500$ $$45,000$

$1/1$ Retained earnings $$315,600$ $$210,000$

Net income $140,50045,000$

$456,100255,000$

Dividends $(120,000)(35,000)$

$12/31$ Retained earnings $$336,100$ $$220,000$

Palmer Company

Stevens Company

Cash $$201,200$ $$151,000$

Accounts receivable $221,000173,000$

Inventories $100,40081,000$

Investment in Stevens Company $1,027,000$

Equipment $450,000300,000$

Accumulated depreciation$$equipment $(300,000)(140,000)$

Land $360,000290,000$

$$Total assets $$2,059,600$ $$855,000$

Accounts payable $$323,500$ $$135,000$

Bonds payable $400,000$

Common stock $1,000,000500,000$

Retained earnings $336,100220,000$

$$Total liabilities and equity $$2,059,600$ $$855,000$

Required:

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 $31,2024,$ consolidated statements workpaper.

Prepare a consolidated financial statements workpaper for the year ended December $31,2026.$

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 $31,2026.$

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.