On January 1, 2023, Panther, Incorporated, issued securities with a total fair value of $579,000 for 100 percent of Stark Corporation's outstanding ownership shares. Stark has long supplied inventory to Panther. The companies expect to achieve synergies with production scheduling and product development with this combination. Although Stark's book value at the acquisition date was $301,000, the fair value of its trademarks was assessed to be $47,000 more than their carrying amounts. Additionally, Stark's patented technology was undervalued in its accounting records by $231,000. The trademarks were considered to have indefinite lives, and the estimated remaining life of the patented technology was eight years. In 2023, Stark sold Panther inventory costing $65,000 for $130,000. As of December 31, 2023, Panther had resold 63 percent of this inventory. In 2024, Panther bought from Stark $142,000 of inventory that had an original cost of $71,000. At the end of 2024, Panther held $38,500 (transfer price) of inventory acquired from Stark, all from its 2024 purchases. During 2024, Panther sold Stark a parcel of land for $89,200 and recorded a gain of $16,200 on the sale. Stark still owes Panther $62,800 (current liability) related to the land sale.
On January 1, 2023, Panther, Incorporated, issued securities with a total fair value of $579,000 for 100 percent of Stark Corporation's outstanding ownership shares. Stark has long supplied inventory to Panther. The companies expect to achieve synergies with production scheduling and product development with this combination. Although Stark's book value at the acquisition date was $301,000, the fair value of its trademarks was assessed to be $47,000 more than their carrying amounts. Additionally, Stark's patented technology was undervalued in its accounting records by $231,000. The trademarks were considered to have indefinite lives, and the estimated remaining life of the patented technology was eight years. In 2023, Stark sold Panther inventory costing $65,000 for $130,000. As of December 31, 2023, Panther had resold 63 percent of this inventory. In 2024, Panther bought from Stark $142,000 of inventory that had an original cost of $71,000. At the end of 2024, Panther held $38,500 (transfer price) of inventory acquired from Stark, all from its 2024 purchases. During 2024, Panther sold Stark a parcel of land for $89,200 and recorded a gain of $16,200 on the sale. Stark still owes Panther $62,800 (current liability) related to the land sale.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On January 1, 2023, Panther, Incorporated, issued securities with a total fair value of $579,000 for 100 percent of Stark Corporation's
outstanding ownership shares. Stark has long supplied inventory to Panther. The companies expect to achieve synergies with
production scheduling and product development with this combination.
Although Stark's book value at the acquisition date was $301,000, the fair value of its trademarks was assessed to be $47,000 more
than their carrying amounts. Additionally, Stark's patented technology was undervalued in its accounting records by $231,000. The
trademarks were considered to have indefinite lives, and the estimated remaining life of the patented technology was eight years.
In 2023, Stark sold Panther inventory costing $65,000 for $130,000. As of December 31, 2023, Panther had resold 63 percent of this
inventory. In 2024, Panther bought from Stark $142,000 of inventory that had an original cost of $71,000. At the end of 2024, Panther
held $38,500 (transfer price) of inventory acquired from Stark, all from its 2024 purchases.
During 2024, Panther sold Stark a parcel of land for $89,200 and recorded a gain of $16,200 on the sale. Stark still owes Panther
$62,800 (current liability) related to the land sale.
At the end of 2024, Panther and Stark prepared the following statements for consolidation.
Stark
Corporation
$ (361,000)
189,500
81,200
Items
Revenues
Cost of goods sold.
Other operating expenses
Gain on sale of land
Equity in Stark's earnings
Net income
Retained earnings, 1/1/24
Net income
Dividends declared
Retained earnings, 12/31/24
Cash and receivables
Inventory
Investment in Stark
Trademarks
Land, buildings, and equipment (net)
Patented technology
Total assets
Liabilities
Common stock
Additional paid-in capital
Retained earnings, 12/31/24
Total liabilities and equity
Panther,
Incorporated
$ (719,200)
309,000
169, 200
(16,200)
(50,025)
$ (307,225)
$
(367,500)
(307,225)
83,900
$ (590,825)
$ 105,000
320, 100
699,900
0
656,700
0
$ 1,781,700
$ (488,575)
(400,000)
(302,300)
(590,825)
$ (1,781,700)
0
0
$ (90,300)
$ (293,000)
(90,300)
26,000
$ (357,300)
$ 156,000
111,400
0
58,700
283,400
126,500
$ 736,000
$ (220,900)
(105,000)
(52,800)
(357,300)
$ (736,000)
Required:
a. Show how Panther computed its $50,025 equity in Stark's earnings balance.
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