On January 1, 2010, Perry Company purchased 80% of Selby Company for $960,000. At that time Selby had capital stock outstanding of $400,000 and retained earnings of $400,000.

The fair value of Selby Company’s assets and liabilities is equal to their book value except for the following:

One-half of the inventory was sold in 2010; the remainder was sold in 2011.
At the end of 2010, Perry Company had in its ending inventory $54,000 of merchandise it had purchased from Selby Company during the year. Selby Company sold the merchandise at 20% above cost. During 2011, Perry Company sold merchandise to Selby Company for $300,000 at a markup of 20% of the selling price. At December 31, 2011, Selby still had merchandise that it purchased from Perry Company for $78,000 in its inventory.
Financial data for 2011 are presented here:

Required:
A. Prepare the consolidated statements workpaper for the year ended December 31, 2011.
B. Calculate consolidated retained earnings on December 31, 2011, using the analytical or t-accountapproach.

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Fair Value Book Value Inventory Plant and Equipment (10-year life) $230,000 800,000 $155,000 600,000 Perry Company Sales Equity in Subsidiary Income Cost of Goods Sold 1,385,000 208,000 1,593,000 Selby Company 720,000 720,000 Total Revenue Beginning Inventory Purchases Cost of Goods Available Less: Ending Inventory 210,000 875,000 1,085,000 400,000 685,000 225,000 910,000 155,000 360,000 515,000 225,000 290,000 170,000 460,000 Cost of Goods Sold Other Expenses Total Cost and Expense 683,000260,000 Net Income 1/1 Retained Earnings Net Income Dividends Declared 12/31 Retained Ear 450,000 260,000 $1,472,700 683,000 (40,000) 2,115,700 (30,000) nings 680.000 Cash Accounts Receivable (net) Inventory Investment in Selby Company Plant and Equipment (net) Other Assets (net) S 90,000 297,000 400,000 1,184,000 880,000 384,000 3,235,000 $ 65,000 85,000 225,000 540,000 230,000 1,145,000 Total Assets Accounts Payable Other Liabilities Common Stock Retained Earnings 24,300 95,000 1,000,000 2,115,700 3,235,000 25,000 40,000 400,000 680,000 $1,145,000 Total Liabilities and Equity