On January 1, 2017, Panther, Inc., issued securities with a total fair value of $616,000 for 100 percent of Stark Corporation's outstanding ownership shares. Stark has long supplied inventory to Panther. The companies expect to achieve synergies with production scheduling and product development with this combination.

 

Although Stark's book value at the acquisition date was $350,000, the fair value of its trademarks was assessed to be $78,000 more than their carrying amounts. Additionally, Stark's patented technology was undervalued in its accounting records by $188,000. The trademarks were considered to have indefinite lives, and the estimated remaining life of the patented technology was eight years.

 

In 2017, Stark sold Panther inventory costing $120,000 for $240,000. As of December 31, 2017, Panther had resold 77 percent of this inventory. In 2018, Panther bought from Stark $187,000 of inventory that had an original cost of $93,500. At the end of 2018, Panther held $50,500 (transfer price) of inventory acquired from Stark, all from its 2018 purchases.

 

During 2018, Panther sold Stark a parcel of land for $117,700 and recorded a gain of $20,700 on the sale. Stark still owes Panther $80,800 (current liability) related to the land sale.

 

At the end of 2018, Panther and Stark prepared the following statements in preparation for consolidation.

 

 Panther, Inc. Stark CorporationRevenues$(925,400) $(406,000)Cost of goods sold 398,200   213,000 Other operating expenses 217,900   91,200 Gain on sale of land (20,700)  0 Equity in Stark's earnings (59,950)  0 Net income$(389,950) $(101,800)Retained earnings 1/1/18$(382,500) $(330,700)Net income (389,950)  (101,800)Dividends declared 106,600   40,500 Retained earnings 12/31/18$(665,850) $(392,000)Cash and receivables$153,000  $205,000 Inventory 465,700   145,700 Investment in Stark 820,400   0 Trademarks 0   76,600 Land, buildings, and equip. (net) 956,500   369,700 Patented technology 0   165,000 Total assets$2,395,600  $962,000 Liabilities$(990,850) $(314,650)Common stock (400,000)  (215,000)Additional paid-in capital (338,900)  (40,350)Retained earnings 12/31/18 (665,850)  (392,000)Total liabilities and equity$(2,395,600) $(962,000)

 

1. Show how Panther computed its $59,950 equity in Stark's earnings balance.
2. Prepare an 2018 consolidated worksheet for Panther and Stark.
3.