Palm Company acquired 100 percent of Storm Company?s voting stock on January 1, 2011,

by issuing 10,000 shares of its $10 par value common stock (having a fair value of $14 per share). As of that date, Storm had stockholders? equity totaling $105,000. Land shown on Storm?s accounting records was undervalued by $10,000. Equipment (with a 5-year remain- ing life) was undervalued by $5,000. A secret formula developed by Storm was appraised at $20,000 with an estimated life of 20 years.

Following are the separate financial statements for the two companies for the year end- ing December 31, 2015. There were no intra-entity payables on that date. Credit balances are indicated by parentheses. ***** Please see attachment for the statements

a.Explain how Palm derived the $66,000 balance in the Subsidiary Earnings account.

b.Prepare a worksheet to consolidate the financial information for these two companies.

** Please complete template attached. Thanks!

35 Accounts Income Statement Revenues Cost of goods sold Depreciation expense Amortization expense Equity in subsidiary earnings Net Income Statement of Retained Earnings Retained earnings 1/1 Net income (above) Dividends paid Retained earnings 12/31 Balance Sheet Current assets Investment in Storm Co. Land Buildings and equipment (net) Formula Total assets Current liabilities Long-term liabilities Common stock Additional paid-in capital Retained earnings 12/31 Total Liabilities and Equity Parentheses indicate a credit balance Palm Co. (485,000) 160,000 130,000 Consolidation Entries Debit Credit Storm Co. (66,000) (261,000) (190,000) 70,000 52,000 (E) (E) (I) (68,000) (659,000) (261,000) 175,500 (744,500) (98,000) (S) (68,000) 40,000 (126,000) 268,000 216,000 427,500 713,000 (D) 75,000 (D) 1,624,500 58,000 (A) 161,000 (A) (A) 294,000 (110,000) (80,000) (600,000) (90,000) (744,500) (1,624,500) (19,000) (84,000) (60,000) (S) (5,000) (S) (126,000) (294,000) (S) (A) (I) (E) (E) Totals