On January 1, 2013, 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 2013; the remainder was sold in 2014.
At the end of 2013, 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 2014, Perry Company sold merchandise to Selby Company for $300,000 at a markup of 20% of the selling price. At December 31, 2014, Selby still had merchandise that it purchased from Perry Company for $78,000 in its inventory.
Financial data for 2014 are presented here:

Required:
A. Prepare the consolidated statements work-paper for the year ended December 31, 2014?
B. Calculate consolidated retained earnings on December 31, 2014, using the analytical or t-account approach?

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Fair Value Book Value Inventony Plant and Equipment (10-year life) S230,000 800,000 $155,000 600,000 Perry Company $1,385,000 208,000 1,593,000 Selby Company Sales 720,000 Equity in Subsidiary Income Total Revenue 720,000 Cost of Goods Sold 210,000 875,000 1,085,000 400,000 685,000 225,000 910,000 S 683,000 $1,472.700 683,000 Beginning Inventory 155,000 360,000 515,000 225,000 290,000 70,000 460,000 S 260,000 S 450,000 260,000 30,000) S 680,000 S 65,000 85,000 225,000 Cost of Goods Available Less: Ending Inventory Cost of Goods Sold Other Expenses Total Cost and Expense Net Income 1/1 Retained Earnings Net Income Dividends Declared 12/31 Retained Earnings Cash Accounts Receivable (net) Inventory Investment in Selby Company Plant and Equipment (net) Other Assets (net) (40,000) S2,115,700 S 90,000 297,000 400,000 1,184,000 880,000 384,000 S3,235,000 540,000 230,000 $1,145,000 Total Assets Accounts Payable Other Liabilities Common Stock Retained Earnings S 24,300 95,000 1,000,000 2,115,700 S3,235,000 25,000 40,000 400,000 680,000 Total Liabilities and Equity