On December 31, 20X1, Pate Corporation acquired 80% of Starmont Corporation’s common stock for $900,000 cash. Assume that the fair values of Starmont’s identifiable assets and liabilities equaled book values on the acquisition date. Following are the December 31, 20X1, separate balance sheets of Pate and Starmont immediately following the acquisition:

The following are Pate’s and Starmont’s results of operations during 20X2:

Additional Information:

• Included in these totals are intra-entity sales from Pate to Starmont totaling $100,000. Pate applies the same markup on sales to Starmont as to its other customers. Starmont sold all of this inventory to outside customers during 20X2 for $150,000.

• There was no goodwill impairment during 20X2.

• The applicable income tax rate is 21%.

Required:

1. Prepare the December 31, 20X1, consolidated balance sheet under the acquisition method.

2. Prepare the consolidated income statement for the year ended December 31, 20X2.

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Pate Starmont Assets $ 400,000 1,000,000 $ 300,000 860,000 Current assets Long-term assets Investment in Starmont 900,000 Total assets $2,300,000 $1,160,000 Liabilities Current liabilities Long-term liabilities $ 300,000 $ 100,000 170,000 900,000 Total liabilities 1,200,000 270,000 Stockholders' Equity Common stock 500,000 600,000 300,000 590,000 Retained earnings Total stockholders' equity 1,100,000 890,000 Total liabilities and equity $2,300,000 $1,160,000