Chapter 7, Homework Problem 07

This question requires the submission of aformatted Excel spreadsheet. When you're finished, your completed spreadsheet should be submitted directly to your instructor outside of the WileyPLUS system. Please ask your instructor for any further instructions related to submitting your work for grading.

Parsons Company acquired 90% of the outstanding common stock of Shea Company on June 30, 2014, for $426,000. On that date, Shea Company had retained earnings in the amount of $60,000, and the fair value of its recorded assets and liabilities was equal to their book value. The excess of implied over the fair value of the recorded net assets was attributed to an unrecorded manufacturing formula held by Shea Company, which had an expected remaining useful life of five years from June 30, 2014.

Financial data for 2016 are presented here:

Parsons Company

Shea Company

Sales$2,555,500

$1,120,000

Dividend Income54,000

Total Revenue2,609,500

1,120,000

Cost of Goods Sold1,730,000

690,500

Expenses654,500

251,000

Total Cost and Expense2,384,500

941,500

Net income$225,000

$178,500

1/1 Retaines Earnings$595,000

$139,500

Net income225,000

178,500

Dividend Declared(100,000

)(60,000

)12/31 Retained Earnings$720,000

$258,000

Cash$119,500

$132,500

Accounts Receivable342,000

125,000

Inventory362,000

201,000

Other Current Assets40,500

13,000

Land150,000

Investment in Shea Company426,000

Property and Equipment825,000

241,000

Accumulated Depreciation(207,000

)

(53,500

)

Total Assets$2,058,000

$659,000

Accounts Payable$295,000

$32,000

Other Liabilities43,000

19,000

Capital Stock1,000,000

300,000

Additional paid-in Capital50,000

Retained Earnings720,000

258,000

Total Liabilities and Equity$2,058,000

$659,000

On December 31, 2014, Parsons Company sold equipment (with an original cost of $100,000 and accumulated depreciation of $50,000) to Shea Company for $97,500. This equipment has since been depreciated at an annual rate of 20% of the purchase price. During 2015 Shea Company sold land to Parsons Company at a profit of $15,000.

The inventory of Parsons Company on December 31, 2015, included goods purchased from Shea Company on which Shea Company recognized a profit of $7,500. During 2016, Shea Company sold goods to Parsons Company for $375,000, of which $60,000 was unpaid on December 31, 2016. The December 31, 2016, inventory of Parsons Company included goods acquired from Shea Company on which Shea Company recognized a profit of $10,500.

Required:

A. Prepare a consolidated financial statements workpaper for the year ended December 31, 2016.

B. Prepare a schedule to calculate consolidated retained earnings on December 31, 2016, using an analytical or t-account approach. (Hint:Due to rounding, you may be out of balance by $1. To avoid this, you should carry decimals until the final calculation.)