On January 1, 2011, Pillar Company purchases an 80% interest in Stark Company for $890,000. On the date of acquisition, Stark has total owners’ equity of $800,000. Buildings, which have a 20-year life, are undervalued by $200,000. The remaining excess of cost over book value is attributable to goodwill. For tax purposes only, goodwill is amortized over 15 years.

On January 1, 2011, Stark sells equipment, with a net book value of $60,000, to Pillar for $100,000. The equipment has a 5-year remaining life. Straight-line depreciation is used. During 2013, Pillar sells $70,000 worth of merchandise to Stark. As a result of these inter-company sales, Stark holds beginning inventory of $40,000 and ending inventory of $30,000.

At December 31, 2013, Stark owes Pillar $8,000 from merchandise sales. Pillar has a gross profit rate of 50%. Neither company has provided for income tax. The companies qualify as an affiliated group and, thus, will file a consolidated tax return based on a 30% corporate tax rate. The original purchase is not a nontaxable exchange.

Trial balances of Pillar and Stark as of December 31, 2013, are as follows:

Required
Prepare a consolidated worksheet based on the trial balances. Include a provision for income tax, a determination and distribution of excess schedule, and income distribution schedules.

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Cash Accounts Receivable.. Inventory.... Investment in Stark.. Plant and Equipment Accumulated Depreciation Liabilities .... Deferred Tax Liability (goodwill amortization) Common Stock Retained Earnings, January 1, 2013. Sales ..... Cost of Goods Sold Depreciation Expense.. Other Expenses.. Subsidiary Income. Totals.... Pillar Company 208,600 130,000 120,000 Stark Company 60,000 210,000 (48,000) 0 380,000 150,000 80,000 1,098,000 600,000 900,000 (350,000) (300,000) (205,000) (150,000) (3,600) (500,000) (300,000) (950,000) (700,000) (800,000) (550,000) 430,000 320,000 50,000 120,000 0