Question

On January 1, 2017, Panther, Inc., issued securities with a total fair value of $588,000 for...

On January 1, 2017, Panther, Inc., issued securities with a total fair value of $588,000 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 $334,000, the fair value of its trademarks was assessed to be $68,000 more than their carrying amounts. Additionally, Stark's patented technology was undervalued in its accounting records by $186,000. The trademarks were considered to have indefinite lives, and the estimated remaining life of the patented technology was eight years.

In 2017, Stark sold Panther inventory costing $102,500 for $205,000. As of December 31, 2017, Panther had resold 61 percent of this inventory. In 2018, Panther bought from Stark $172,000 of inventory that had an original cost of $86,000. At the end of 2018, Panther held $46,400 (transfer price) of inventory acquired from Stark, all from its 2018 purchases.

During 2018, Panther sold Stark a parcel of land for $108,000 and recorded a gain of $19,200 on the sale. Stark still owes Panther $74,800 (current liability) related to the land sale.

At the end of 2018, Panther and Stark prepared the following statements in preparation for consolidation.

Panther, Inc. Stark Corporation
Revenues $ (856,800 ) $ (392,000 )
Cost of goods sold 368,600 205,700
Other operating expenses 201,800 88,100
Gain on sale of land (19,200 ) 0
Equity in Stark's earnings (72,525 ) 0
Net income $ (378,125 ) $ (98,200 )
Retained earnings 1/1/18 $ (377,500 ) $ (318,900 )
Net income (378,125 ) (98,200 )
Dividends declared 103,300 36,500
Retained earnings 12/31/18 $ (652,325 ) $ (380,600 )
Cash and receivables $ 137,000 $ 187,000
Inventory 417,200 133,100
Investment in Stark 762,300 0
Trademarks 0 70,100
Land, buildings, and equip. (net) 856,700 338,300
Patented technology 0 150,900
Total assets $ 2,173,200 $ 879,400
Liabilities $ (791,875 ) $ (282,200 )
Common stock (400,000 ) (180,000 )
Additional paid-in capital (329,000 ) (36,600 )
Retained earnings 12/31/18 (652,325 ) (380,600 )
Total liabilities and equity $ (2,173,200 ) $ (879,400 )

Show how Panther computed its $72,525 equity in Stark's earnings balance.

Show how Panther computed its $72,525 equity in Stark's earnings balance.

Beginning inventory gross profit recognizedselected answer correct ?
Book value of subsidiaryselected answer incorrect ?
Fair value in excess of book valueselected answer incorrect ?
Stark reported net incomeselected answer correct ?
Patented technology amortizationselected answer correct ?
Equity in Stark’s earnings $72,525
Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1
a. Stark reported net income         (98,200)
Patented technology amortization           23,250 (186000/8)
Beginning inventory gross profit recognized         (39,975) (102500 x 39%)
Ending inventory gross profit deferred           23,200 (46400 x 50%)
Deferral of land gain on sale           19,200 Given
Equity in Skyline’s earnings         (72,525)
0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
On January 1, 2018, Brooks Corporation exchanged $1,234,500 fair-value consideration for all of the outstanding voting...
On January 1, 2018, Brooks Corporation exchanged $1,234,500 fair-value consideration for all of the outstanding voting stock of Chandler, Inc. At the acquisition date, Chandler had a book value equal to $1,102,500. Chandler’s individual assets and liabilities had fair values equal to their respective book values except for the patented technology account, which was undervalued by $312,000 with an estimated remaining life of six years. The Chandler acquisition was Brooks’s only business combination for the year. In case expected synergies...
On January 1, 2017, Gardner, Inc. acquired 100 percent of the common stock of Drake Company...
On January 1, 2017, Gardner, Inc. acquired 100 percent of the common stock of Drake Company for $760,000 in cash and other fair-value consideration. Gardner Company fair value was allocated among its net assets as follows: The December 31, 2018 trial balance for the parent and subsidiary follows: Fair value of consideration transferred for Drake Company $760,000 Book value of Drake Company Common stock an APIC $130,000 Retained Earnings $370,000 $500,000 Excess Fair value over book value to: Trademark (10-year...
Parson Company acquired an 80 percent interest in Syber Company on January 1, 2017. Any portion...
Parson Company acquired an 80 percent interest in Syber Company on January 1, 2017. Any portion of Syber's business fair value in excess of its corresponding book value was assigned to trademarks. This intangible asset has subsequently undergone annual amortization based on a 15-year life. Over the past two years, regular intra-entity inventory sales transpired between the two companies. No payment has yet been made on the latest transfer. All dividends are paid in the same period as declared. The...
Mighty Company purchased a 60 percent interest in Lowly Company on January 1, 2017, for $528,300...
Mighty Company purchased a 60 percent interest in Lowly Company on January 1, 2017, for $528,300 in cash. Lowly's book value at that date was reported as $777,500 and the fair value of the noncontrolling interest was assessed at $352,200. Any excess acquisition-date fair value over Lowly's book value is assigned to trademarks to be amortized over 20 years. Subsequently, on January 1, 2018, Lowly acquired a 20 percent interest in Mighty. The price of $360,000 was equivalent to 20...
On January 1, 2015, Panther Incorporated purchased 80% of the Staffer Company’s outstanding voting stock for...
On January 1, 2015, Panther Incorporated purchased 80% of the Staffer Company’s outstanding voting stock for $840,000 in cash and other considerations. On that date, Panther assessed the net fair value of Staffer’s identifiable liabilities and assets at $1,050,000. The 20% noncontrolling interest was assessed at a fair value of $210,000. Amortization of excess fair value over book value was not part of the acquisition. On December 31, 2016, each company’s financial records included the account balances shown below in...
Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1,...
Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2018, for $765,440 cash. At the acquisition date, Sierra’s total fair value, including the noncontrolling interest, was assessed at $956,800 although Sierra’s book value was only $694,000. Also, several individual items on Sierra’s financial records had fair values that differed from their book values as follows: Book Value Fair Value Land $ 63,200 $ 241,200 Buildings and equipment (10-year remaining life) 365,000 331,000 Copyright...
Herbert, Inc., acquired all of Rambis Company’s outstanding stock on January 1, 2017, for $609,000 in...
Herbert, Inc., acquired all of Rambis Company’s outstanding stock on January 1, 2017, for $609,000 in cash. Annual excess amortization of $17,600 results from this transaction. On the date of the takeover, Herbert reported retained earnings of $427,000, and Rambis reported a $239,000 balance. Herbert reported internal net income of $48,000 in 2017 and $59,500 in 2018 and declared $10,000 in dividends each year. Rambis reported net income of $28,000 in 2017 and $39,500 in 2018 and declared $5,000 in...
Adams, Inc., acquires Clay Corporation on January 1, 2017, in exchange for $514,400 cash. Immediately after...
Adams, Inc., acquires Clay Corporation on January 1, 2017, in exchange for $514,400 cash. Immediately after the acquisition, the two companies have the following account balances. Clay’s equipment (with a five-year remaining life) is actually worth $463,800. Credit balances are indicated by parentheses. Adams Clay Current assets $ 372,000 $ 250,000 Investment in Clay 514,400 0 Equipment 700,800 396,000 Liabilities (229,000 ) (209,000 ) Common stock (350,000 ) (150,000 ) Retained earnings, 1/1/17 (1,008,200 ) (287,000 ) In 2017, Clay...
Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1,...
Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2018, for $802,720 cash. At the acquisition date, Sierra’s total fair value, including the noncontrolling interest, was assessed at $1,003,400 although Sierra’s book value was only $690,000. Also, several individual items on Sierra’s financial records had fair values that differed from their book values as follows: Book Value Fair Value Land $ 65,000   $ 290,000   Buildings and equipment (10-year remaining life) 287,000   263,000   Copyright...
Parent acquired Subsidiary on January 1, 2016, at a price $300,000 in excess of book value....
Parent acquired Subsidiary on January 1, 2016, at a price $300,000 in excess of book value. Of that excess, $200,000 was allocated to an unrecorded patent with a 10-year life, with the remainder to goodwill. The parent uses the equity method to account for its investment in its subsidiary. In 2017, Subsidiary sold to Parent land having a book value of $90,000 for a total price of $145,000. Financial statements of the two companies for the year ended December 31,...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT