Problem 5-37 (Algo) (LO 5-2, 5-3, 5-4, 5-6)
On January 1, 2020, Panther, Inc., issued securities with a total fair value of $572,000 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 $306,000, the fair value of its trademarks was assessed to be $50,000 more than their carrying amounts. Additionally, Stark's patented technology was undervalued in its accounting records by $216,000. 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 $70,000 for $140,000. As of December 31, 2020, Panther had resold 60 percent of this inventory. In 2021, Panther bought from Stark $145,000 of inventory that had an original cost of $72,500. At the end of 2021, Panther held $39,300 (transfer price) of inventory acquired from Stark, all from its 2021 purchases.
During 2021, Panther sold Stark a parcel of land for $91,100 and recorded a gain of $16,500 on the sale. Stark still owes Panther $64,000 (current liability) related to the land sale.
At the end of 2021, Panther and Stark prepared the following statements for consolidation.
Revenues: Panther, Inc. $(733,000), Stark Corporation $(365,000)
Cost of goods sold: Panther, Inc. 315,000, Stark Corporation 191,600
Other operating expenses: Panther, Inc. 172,500, Stark Corporation 82,100
Gain on sale of land: Panther, Inc. (16,500), Stark Corporation 0
Equity in Stark's earnings: Panther, Inc. (56,150), Stark Corporation 0
Net income: Panther, Inc. $(318,150), Stark Corporation $(91,300)
Retained earnings, 1/1/21: Panther, Inc. $(368,500), Stark Corporation $(296,300)
Net income: Panther, Inc. (318,150), Stark Corporation (91,300)
Dividends declared: Panther, Inc. 86,900, Stark Corporation 27,500
Retained earnings, 12/31/21: Panther, Inc. $(599,750), Stark Corporation $(360,100)
Cash and receivables: Panther, Inc. $109,000, Stark Corporation $161,000
Inventory: Panther, Inc. 332,300, Stark Corporation 114,900
Investment in Stark: Panther, Inc. 696,600, Stark Corporation 0
Trademarks: Panther, Inc. 0, Stark Corporation 60,500
Land, buildings, and equip. (net): Panther, Inc. 681,900, Stark Corporation 292,100
Patented technology: Panther, Inc. 0, Stark Corporation 130,400
Total assets: Panther, Inc. $1,819,800, Stark Corporation $758,900
Liabilities: Panther, Inc. $(514,650), Stark Corporation $(238,150)
Common stock: Panther, Inc. (400,000), Stark Corporation (115,000)
Additional paid-in capital: Panther, Inc. (305,400), Stark Corporation (45,650)
Retained earnings, 12/31/21: Panther, Inc. (599,750), Stark Corporation (360,100)
Total liabilities and equity: Panther, Inc. $(1,819,800), Stark Corporation $(758,900)
a. Show how Panther computed its $56,150 equity in Stark's earnings balance.
b. Prepare a 2021 consolidated worksheet for Panther and Stark.