On January 1, 2020, Panther, Inc., issued securities with a total fair value of $582,000 for 100 percent of Stark Corporation's outstanding ownership shares. Stark has long supplied inventory to Panther. The companies expect to achieve synergies with production scheduling and product development with this combination. Although Stark's book value at the acquisition date was $342,000, the fair value of its trademarks was assessed to be $75,000 more than their carrying amounts. Additionally, Stark's patented technology was undervalued in its accounting records by $165,000. The trademarks were considered to have indefinite lives, and the estimated remaining life of the patented technology was eight years. In 2020, Stark sold Panther inventory costing $112,500 for $225,000. As of December 31, 2020, Panther had resold 74 percent of this inventory. In 2021, Panther bought from Stark $180,000 of inventory that had an original cost of $90,000. At the end of 2021, Panther held $48,600 (transfer price) of inventory acquired from Stark, all from its 2021 purchases. During 2021, Panther sold Stark a parcel of land for $113,200 and recorded a gain of $20,000 on the sale. Stark still owes Panther $78,000 (current liability) related to the land sale. At the end of 2021, Panther and Stark prepared the following statements for consolidation. Panther, Inc. Stark Corporation Revenues $ (893,400 ) $ (398,000 ) Cost of goods sold 384,400 208,800 Other operating expenses 210,400 89,400 Gain on sale of land (20,000 ) 0 Equity in Stark's earnings (64,125 ) 0 Net income $ (382,725 ) $ (99,800 ) Retained earnings, 1/1/21 $ (380,000 ) $ (324,200 ) Net income (382,725 ) (99,800 ) Dividends declared 104,600 38,500 Retained earnings, 12/31/21 $ (658,125 ) $ (385,500 ) Cash and receivables $ 146,000 $ 198,000 Inventory 444,500 140,800 Investment in Stark 765,900 0 Trademarks 0 74,1
On January 1, 2020, Panther, Inc., issued securities with a total fair value of $582,000 for 100 percent of Stark Corporation's outstanding ownership shares. Stark has long supplied inventory to Panther. The companies expect to achieve synergies with production scheduling and product development with this combination.
Although Stark's book value at the acquisition date was $342,000, the fair value of its trademarks was assessed to be $75,000 more than their carrying amounts. Additionally, Stark's patented technology was undervalued in its accounting records by $165,000. The trademarks were considered to have indefinite lives, and the estimated remaining life of the patented technology was eight years.
In 2020, Stark sold Panther inventory costing $112,500 for $225,000. As of December 31, 2020, Panther had resold 74 percent of this inventory. In 2021, Panther bought from Stark $180,000 of inventory that had an original cost of $90,000. At the end of 2021, Panther held $48,600 (transfer price) of inventory acquired from Stark, all from its 2021 purchases.
During 2021, Panther sold Stark a parcel of land for $113,200 and recorded a gain of $20,000 on the sale. Stark still owes Panther $78,000 (current liability) related to the land sale.
At the end of 2021, Panther and Stark prepared the following statements for consolidation.
| Panther, Inc. | Stark Corporation | ||||||
| Revenues | $ | (893,400 | ) | $ | (398,000 | ) | |
| Cost of goods sold | 384,400 | 208,800 | |||||
| Other operating expenses | 210,400 | 89,400 | |||||
| Gain on sale of land | (20,000 | ) | 0 | ||||
| Equity in Stark's earnings | (64,125 | ) | 0 | ||||
| Net income | $ | (382,725 | ) | $ | (99,800 | ) | |
| $ | (380,000 | ) | $ | (324,200 | ) | ||
| Net income | (382,725 | ) | (99,800 | ) | |||
| Dividends declared | 104,600 | 38,500 | |||||
| Retained earnings, 12/31/21 | $ | (658,125 | ) | $ | (385,500 | ) | |
| Cash and receivables | $ | 146,000 | $ | 198,000 | |||
| Inventory | 444,500 | 140,800 | |||||
| Investment in Stark | 765,900 | 0 | |||||
| Trademarks | 0 | 74,100 | |||||
| Land, buildings, and equip. (net) | 912,900 | 357,600 | |||||
| Patented technology | 0 | 159,600 | |||||
| Total assets | $ | 2,269,300 | $ | 930,100 | |||
| Liabilities | $ | (875,375 | ) | $ | (318,650 | ) | |
| Common stock | (400,000 | ) | (200,000 | ) | |||
| Additional paid-in capital | (335,800 | ) | (25,950 | ) | |||
| Retained earnings, 12/31/21 | (658,125 | ) | (385,500 | ) | |||
| Total liabilities and equity | $ | (2,269,300 | ) | $ | (930,100 | ) | |
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Show how Panther computed its $64,125 equity in Stark's earnings balance.
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Prepare a 2021 consolidated worksheet for Panther and Stark.
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