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Workpaper Entries and Consolidated Financial Statements, Partial Equity Method LO 1 LO 6 LO 7 LO 9 ( Note that this is the same problem

Workpaper Entries and Consolidated Financial Statements, Partial Equity Method LO 1 LO 6 LO 7 LO 9
(Note that this is the same problem as Problem 5-5, but assuming the use of the partial equity method.)
On January 1,2024, Palmer Company acquired a 90% interest in Stevens Company at a cost of $1,000,000. At the purchase date, Stevens Company's stockholders' equity consisted of the following:
Common stock $500,000
Retained earnings 190,000
An examination of Stevens Company's assets and liabilities revealed the following at the date of acquisition:
Book Value
Fair Value
Cash
$90,726
$90,726
Accounts receivable
200,000
200,000
Inventories
160,000
210,000
Equipment
300,000
390,000
Accumulated depreciationequipment
(100,000)
(130,000)
Land
190,000
290,000
Bonds payable
(205,556)
(150,000)
Other
54,830
54,830
Total
$690,000
$955,556
Additional InformationDate of Acquisition
Stevens Company's equipment had an original life of 15 years and a remaining useful life of 10 years. All the inventory was sold in 2024. Stevens Company purchased its bonds payable on the open market on January 10,2024, for $150,000 and recognized a gain of $55,556. Palmer Company uses the partial equity method to record its investment in Stevens Company. Financial statement data for 2026 are presented here:
Palmer Company
Stevens Company
Sales $620,000 $340,000
Cost of sales 430,000240,000
Gross margin 190,000100,000
Depreciation expense 30,00020,000
Other expenses 60,00035,000
Income from operations 100,00045,000
Equity in subsidiary income 40,5000
Net income $140,500 $45,000
1/1 Retained earnings $315,600 $210,000
Net income 140,50045,000
456,100255,000
Dividends (120,000)(35,000)
12/31 Retained earnings $336,100 $220,000
Palmer Company
Stevens Company
Cash $201,200 $151,000
Accounts receivable 221,000173,000
Inventories 100,40081,000
Investment in Stevens Company 1,027,000
Equipment 450,000300,000
Accumulated depreciationequipment (300,000)(140,000)
Land 360,000290,000
Total assets $2,059,600 $855,000
Accounts payable $323,500 $135,000
Bonds payable 400,000
Common stock 1,000,000500,000
Retained earnings 336,100220,000
Total liabilities and equity $2,059,600 $855,000
Required:
Prepare in general journal form the workpaper entry to allocate and depreciate the difference between book value and the value implied by the purchase price in the December 31,2024, consolidated statements workpaper.
Prepare a consolidated financial statements workpaper for the year ended December 31,2026.
Prepare in good form a schedule or t-account showing the calculation of the controlling interest in consolidated net income for the year ended December 31,2026.
If you completed Problem 5-5, a comparison of the consolidated balances in this problem with those you obtained in Problem 5-5 will demonstrate that the method (cost or partial equity) used by the parent company to record its investment in a consolidated subsidiary has no effect on the consolidated balances.

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