On January 1, 2017, Travers Company acquired 90 percent of Yarrow Company's outstanding stock for $864,000. The 10 percent noncontrolling interest had an assessed fair value of $96,000 on that date. Any acquisition-date excess fair value over book value was attributed to an unrecorded customer list developed by Yarrow with a remaining life of 15 years On the same date, Yarrow acquired an 80 percent interest in Stookey Company for $472,000. At the acquisition date, the 20 percent noncontrolling interest fair value was $118,000. Any excess fair value was attributed to a fully amortized copyright that had a remaining life of 10 years. Although both investments are accounted for using the initial value method, neither Yarrow nor Stookey have distributed dividends since the acquisition date. Travers has a policy to declare and pay cash dividends each year equal to 40 percent of its separate company operating earnings. Reported income totals for 2017 follow: Travers Company Yarrow Company Stookey Company 46e,000 240,000 184,000 Following are the 2018 financial statements for these three companies. Stookey has transferred numerous amounts of inventory to Yarrow since the takeover amounting to $112,000 (2017) and $140,000 (2018). These transactions include the same markup applicable to Stookey's outside sales. In each year, Yarrow carried 20 percent of this inventory into the succeeding year before disposing of it. An effective tax rate of 40 percent is applicable to all companies. All dividend declarations are paid in the same period Yarrow Company $(1,060,000) (723,200) (532,000) Stookey Company Travers Company Sales Cost of goods sold Operating expenses 385,600 96,000 319,200 564,800 117,600 106,400 (241,600) (106,400) $(444,e00) $ (377,600) Net income Retained earnings, 1/1/18 Net income (above) Dividends declared 860, (377,600) (724,800) (241,600) ,000) (106,400) 151,048 $(1,086,560) (966,400) (550,400) $458,400 Retained earnings, 12/31/18 Current assets Investment in Yarrow Company Investment in Stookey Company Land, buildings, and equipment (net) $ 541,600 $ 358,700 864,000 1,139,400 $ 2,545,000 472,008 868,000 510,408 $ 869,100 Total assets Liabilities Common stock Retained earnings, 12/31/18 $ 1,798,400 $ (958,440) (512,800) (118,700) (1,986,560)(966,400)(550,400) (500,000) (319,200) (200,000) Total liabilities and equities $(2,545,000 $(1,798,400) $(869,100) Note: Parentheses indicate a credit balance a. Prepare the business combination's 2018 consolidation worksheet; ignore income tax effects b. Determine the amount of income tax for Travers and Yarrow on a consolidated tax return for 2018 c. Determine the amount of Stookey's income tax on a separate tax return for 2018. d. Based on the answers to requirements (b) and (c), what journal entry does this combination make to record 2018 income tax
