On January 1, 2017, Perry Company purchased 80% of Selby Company for $990,000. At that time Selby had capital stock outstanding of $350,000 and retained earnings of $375,000. 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 2017, the remainder was sold in 2018. At the end of 2017, Perry Company had in its ending inventory $60,000 of merchandise it had purchased from Selby Company during the year. Selby Company sold the merchandise at 25% above cost. During 2018, Perry Company sold merchandise to Selby Company for $310,000 at a markup of 20% of the selling price. At December 31, 2018, Selby still had merchandise that it purchased from Perry Company for $82,000 in its inventory.

Financial data for 2018 are presented here:

Required:

A. Prepare the consolidated statements workpaper for the year ended December 31, 2018.

B. Calculate consolidated retained earnings on December 31, 2018, using the analytical or taccount approach.

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Fair Value Book Value Inventory Plant and Equipment (10-year life) $160,000 $210,000 780,000 630,000 Perry Company Selby Company Sales $1,400,000 $ 800,000 Dividend Income 20,000 Total Revenue 1,420,000 800,000 Cost of Goods Sold: Beginning Inventory 230,000 145,000 Purchases 900,000 380,000 Cost of Goods Available 1,130,000 525,000 Less: Ending Inventory 450,000 200,000 Cost of Goods Sold 680,000 325,000 Other Expenses 250,000 195,000 Total Cost and Expense 930,000 $ 490,000 520,000 Net Income $ 280,000 1/1 Retained Earnings $1,500,000 $ 480,000 Net Income 490,000 280,000 Dividends Declared (50,000) (25,000) $ 735,000 12/31 Retained Earnings $1,940,000 Cash $ 95,000 70,000 Accounts Receivable (net) 302,000 90,000 Inventory 450,000 200,000 Investment in Selby Company Plant and Equipment (net) Other Assets (net) 990,000 850,000 585,000 390,000 230,000 Total Assets $3,077,000 $1,175,000 Accounts Payable $ 75,000 $ 30,000 Other Liabilities 102,000 60,000 Common Stock 960,000 350,000 Retained Earnings Total Liabilities and Equity 1,940,000 $3,077,000 735,000 $1,175,000