Allen Company acquired 100 percent of Bradford Company’s voting stock on January 1, 2020, by issuing 10,000 shares of its $10 par value common stock (having a fair value of $14 per share). As of that date, Bradford had stockholders’ equity totaling $105,000. Land shown on Bradford’s accounting records was undervalued by $10,000. Equipment (with a 5-year remaining life) was undervalued by $5,000. A secret formula developed by Bradford was appraised at $20,000 with an estimated life of 20 years.

The following are the separate financial statements for the two companies for the year ending December 31, 2024. There were no intra-entity payables on that date. Credit balances are indicated by parentheses.

a. Explain how Allen derived the $66,000 balance in the Subsidiary Earnings account.

b. Prepare a worksheet to consolidate the financial information for these two companies.

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Revenues... Cost of goods sold. Depreciation expense.. Equity in subsidiary earnings Net income... Retained earnings, 1/1/24.. Net income (above) Dividends declared... Retained earnings, 12/31/24... Current assets ....... Investment in Bradford Company Land....... Buildings and equipment (net). Total assets .... Current liabilities Common stock Additional paid-in capital. Retained earnings, 12/31/24.. Total liabilities and equity 144 Allen Company $ (485,000) 160,000 130,000 (66,000) $ (261,000) $ (659,000) (261,000) 175,500 $ (744,500) $ 268,000 216,000 427,500 713,000 $1,624,500 $ (190,000) (600,000) (90,000) (744,500) $(1,624,500) Bradford Company $(190,000) 70,000 52,000 -0- $ (68,000) $ (98,000) (68,000) 40,000 $(126,000) $ 75,000 -0- 58,000 161,000 $ 294,000 $(103,000) (60,000) (5,000) (126,000) $(294,000)