Upstream and Downstream Workpaper, Comprehensive Problem On January 1, 2002, 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: LO5 Fair Value Book Value Inventory $210,000 $160,000 Plant and Equipment (10-year life) 780,000 630,000 One-half of the inventory was sold in 2002, the remainder was sold in 2003.
At the end of 2002, 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 2003, Perry Company sold merchandise to Selby Company for $310,000 at a markup of 20% of the selling price. At December 31, 2003, Selby still had merchandise that it purchased from Perry Company for $82,000 in its inventory.
Financial data for 2003 are presented here:
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 930,000 520,000 Net Income $ 490,000 $ 280,000 1/1 Retained Earnings $1,500,000 $ 480,000 Net Income 490,000 280,000 Dividends Declared (50,000) (25,000)
12/31 Retained Earnings $1,940,000 $ 735,000 Cash $ 95,000 $ 70,000 Accounts Receivable (net) 302,000 90,000 Inventory 450,000 200,000 Investment in Selby Company 990,000 Plant and Equipment (net) 850,000 585,000 Other Assets (net) ___ 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 —_ 1,940,000_ —__735,000_ Total Liabilities and Equity $3,077,000 $1,175,000_ Required:
A. Prepare the consolidated statements workpaper for the year ended December 31, 2003.

B. Calculate consolidated retained earnings on December 31, 2003, using the analytical or t-account approach.