Palm Company acquired 100 percent of Storm Companys 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 Storms 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 parenthese

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.

c. Explain how Storms individual financial records would differ if the push-down method of accounting had been applied.

Revenues Cost of goods sold Depreciation expense. Subsidiary earnings Net income Retained earnings, 1/1/15 Net income (above) Dividends declared Retained earnings, 12/31/15. Current assets Investment in Storm Company. Land Buildings and equipment (net) Total assets Current liabilities Long-term liabilities Common stock Additional paid-in capita Retained earnings, 12/31/15 Total liabilities and equity Palm Storm Company Company (485,000) $(190,000) 70,000 160,000 130,000 52,000 (66,000) (261,000) (68,000) (659,000) (98,000) (261,000) (68,000) 175,500 40,000 (744,500) $(126,000) 268,000 75,000 216,000 427,500 58,000 713,000 161,000 1,624,500 294,000 (110,000) (19,000) (80,000) (84,000) (600,000) 0.000 (5,000) (90,000) (744,500) (126,000) $(1,624,500) $(294,000)