On January 1, 2017, Panther, Inc., issued securities with a total fair value of $564,000 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 $312,000, the fair value of its trademarks was assessed to be $53,000 more than their carrying amounts. Additionally, Stark's patented technology was undervalued in its accounting records by $199,000. 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 $77,500 for $155,000. As of December 31, 2017, Panther had resold 66 percent of this inventory. In 2018, Panther bought from Stark $154,000 of inventory that had an original cost of $77,000. At the end of 2018, Panther held $41,700 (transfer price) of inventory acquired from Stark, all from its 2018 purchases. During 2018, Panther sold Stark a parcel of land for $96,800 and recorded a gain of $17,400 on the sale. Stark still owes Panther $67,600 (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 Corporation Revenues $ (774,100 ) $ (368,000 ) Cost of goods sold 332,700 193,100 Other operating expenses 182,100 82,700 Gain on sale of land (17,400 ) 0 Equity in Stark's earnings (55,425 ) 0 Net income $ (332,125 ) $ (92,200 ) Retained earnings 1/1/18 $ (371,000 ) $ (299,300 ) Net income (332,125 ) (92,200 ) Dividends declared 90,700 29,500 Retained earnings 12/31/18 $ (612,425 ) $ (362,000 ) Cash and receivables $ 117,000 $ 169,000 Inventory 356,600 120,500 Investment in Stark 718,000 0 Trademarks 0 63,400 Land, buildings, and equip. (net) 731,900 306,100 Patented technology 0 136,700 Total assets $ 1,923,500 $ 795,700 Liabilities $ (600,375 ) $ (241,700 ) Common stock (400,000 ) (130,000 ) Additional paid-in capital (310,700 ) (62,000 ) Retained earnings 12/31/18 (612,425 ) (362,000 ) Total liabilities and equity $ (1,923,500 ) $ (795,700 ) Show how Panther computed its $55,425 equity in Stark's earnings balance. Prepare a 2018 consolidated worksheet for Panther and Stark.

Reference links

eBook: LO 05-02 Demonstrate the consolidation procedures to eliminate intra-entity sales and purchases balances. opens in a new window

eBook: LO 05-03 Explain why consolidated entities defer intra-entity gross profit in ending inventory and the consolidation procedures required to subsequently recognize profits. opens in a new window

eBook: LO 05-04 Understand that the consolidation process for inventory transfers is designed to defer the intra-entity gross profit remaining in ending inventory from the year of transfer into the year of disposal or consumption. opens in a new window

eBook: LO 05-06 Prepare the consolidation entry to defer any gain created by an intra-entity transfer of land from the accounting records of the year of transfer and subsequent years.