Parsons Company acquired 90% of the outstanding common stock of Shea Company on June 30, 2014, for$426,000. On that date, Shea Company had retained earnings in the amount of $60,000, and the fair value of its recorded assets and liabilities was equal to their book value. The excess of implied over the fair value of the recorded net assets was attributed to an unrecorded manufacturing formula held by Shea Company, which had an expected remaining useful life of five years from June 30, 2014.Financial data for 2016 are presented here:

Pearson companyShea Company

Sales$ 2,555,5000$1,120,000

Dividend Income54,0000

Total revenue2,609,500$1,120,000

Cost of goods sold1,703,000690,5000

Expenses654,0000251,000

Total Cost and expenses2,384,5000941,500

Net income$225,500$178,500

1/1 Retained earnings$595,000$ 139,500

Net income225,000178,500

Dividend Declared(100,000)(60,000)

12/31 Retained earnings$ 720,000$ 258,000

Pearson CompanyShea Company

Cash$ 119,500$ 132,500

Accounts Receivables342,000125,000

Inventory362,000201,000

Current assets40,50013,0000

Land150,000

Investment in shea company426,000

Property and equipment825,000241,000

Accumulated Depreciation(207,000)(53,500)

Total assets$ 2,058,000$ 659,000

Accounts payable$ 295,000$ 32,000

Other Liabilities43,00019,000

Capital stock1,000,000300,000

Additional Paid in capital50,000

Retained Earnings720,000258,000

Total liability and equity$2,058,000$ 659,000

On December 31, 2014, Parsons Company sold equipment (with an original cost of $100,000 and accumulated depreciation of $50,000) to Shea Company for $97,500. This equipment has since been depreciated at an annual rate of 20% of the purchase price. During 2015 Shea Company sold land to Parsons Company at a profit of$15,000.

The inventory of Parsons Company on December 31, 2015, included goods purchased from Shea Company on which Shea Company recognized a profit of $7,500. During 2016, Shea Company sold goods to Parsons Company for $375,000, of which $60,000 was unpaid on December 31, 2016. The December 31,2016, inventory of Parsons Company included goods acquired from Shea Company on which Shea Company recognized a profit of $10,500.

Required :A.Prepare a consolidated financial statements work paper for the year ended December 31, 2016

B.Prepare a schedule to calculate consolidated retained earnings on December 31, 2016, using an analytical ort-account approach. (Hint:Due to rounding, you may be out of balance by $1. To avoid this, you should carry decimals until the final calculation.)

Please show all work.

First journal entry

1 investment in shea

beginning retained earnings- Parsons

to establish reciprocity/convert to equity