On January 1, 2017, Panther, Inc., issued securities with atotal fair value of $557,000 for 100 percent of Stark Corporation’soutstanding ownership shares. Stark has long supplied inventory toPanther. The companies expect to achieve synergies with productionscheduling and product development with this combination.
Although Stark’s book value at this acquisition date was$315,000, the fair value of its trademarks was assessed to be$55,000 more than their carrying amounts. Additionally, Stark’spatented technology was undervalued in its accounting record byS187,000. The trademarks were considered to have indefinite lives,and the estimated remaining life of the patented technology waseight years.
In 2017, Stark sold Panther inventory costing $80,000 for$160,000. As of December 31, 2017, Panther had resold 62 percent ofthis inventory. In 2018, Panther bought from Stark $156,000 ofinventory that had an original cost of $78,000. At the end of 2018,Panther held $42,200 (transfer price) of inventory acquired fromStark, all from its 2018 purchases.
During 2018, Panther sold Stark a parcel of land for $98,000 andrecorded a gain of $17,600 on the sale. Stark still owes Panther$68,400 (current liability) related to the land sale.
At the end of 2018, Panther and Stark prepared the followingstatements in preparations for consolidation.
| Panther, Inc. | Stark Corporation |
Revenues | $ (783,300) | $ (371,000) |
Cost of goods sold | 336,700 | 194,700 |
Other operating expenses | 184,300 | 83,400 |
Gains on sale of land | (17,600) | 0 |
Equity in Stark’s earnings | (61,225) | 0 |
Net income | $ (341,125) | $ (92,900) |
Retained earnings 1/1/18 | $ (371,500) | $ (301,600) |
Net income | (341,125) | (92,900) |
Dividends declared | 93,200 | 30,000 |
Retained earnings 12/31/18 | $ (619,425) | $ (364,500) |
Cash and receivables | $ 118,000 | $ 170,000 |
Inventory | 359,600 | 121,200 |
Investment in Stark | 702,400 | 0 |
Trademarks | 0 | 63,800 |
Land, buildings, and equip. (net) | 738,100 | 308,000 |
Patented technology | 0 | 137,500 |
Total assets | $ 1,918,100 | $ 800,500 |
Liabilities | $ (587,175) | $ (254,650) |
Common stock | (400,000) | (135,000) |
Additional paid-in capital | (311,500) | (46,350) |
Retained earnings 12/31/18 | (619,425) | (364,500) |
Total liabilities and equity | $ (1,918,100) | $ (800,500) |
a. Show how Panther computed its $61,225 equity in Stark’searnings balance.
b. Prepare a 2018 consolidated worksheet for Panther andStark.
