Allen Company acquired 100 percent of Bradford Company’s voting stock on January 1, 2017, 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 five-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, 2021. 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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Allen Company $ (485,000) 160,000 130,000 Bradford Company $(190,000) 70,000 Revenues. Cost of goods sold. Depreciation expense Subsidiary earnings 52,000 (66,000) -0- $ (261,000) $ (659,000) (261,000) 175,500 $ (744,500) Net income.. $ (68,000) Retained earnings, 1/1/21. Net income (above) $ (98,000) (68,000) 40,000 Dividends declared. Retained earnings, 12/31/21 $(126,000) Current assets $ 268,000 $ 75,000 Investment in Bradford Company 216.000 -0- Land.. 427,500 58,000 161,000 $ 294.000 Buildings and equipment (net) 713,000 Total assets $ 1,624,500 $ (190,000) (600,000) (90,000) (744,500) $(1,624,500) $(103,000) (60,000) (5,000) (126,000) Current liabilities Common stock Additional paid-in capital. Retained earnings, 12/31/21 Total liabilities and equity $(294,000)