On January 1, 2016, Plymouth Corporation acquired 80 percent of the outstanding voting stock of Sander Company in exchange for $1,200,000 cash. At that time, although Sander’s book value was $925,000, Plymouth assessed Sander’s total business fair value at $1,500,000. Since that time, Sander has neither issued nor reacquired any shares of its own stock. The book values of Sander’s individual assets and liabilities approximated their acquisition-date fair values except for the patent account, which was undervalued by $350,000. The undervalued patents had a five-year remaining life at the acquisition date. Any remaining excess fair value was attributed to goodwill. No goodwill impairments have occurred. Sander regularly sells inventory to Plymouth. Below are details of the intra-entity inventory sales for the past three years:       Gross Profit     Intra-Entity Rate on     Ending Inv. Intra-Entity   Intra-Entity Transfer Inventory Year Sales Price Transfers 2016 $       125,000 $         80,000 25% 2017        220,000        125,000 28% 2018        300,000        160,000 25% Separate financial statements as of December 31, 2018:             Plymouth Sander Revenues $ (1,740,000) $     (950,000) Cost of goods sold        820,000        500,000 Depreciation expense        104,000          85,000 Amortization expense        220,000        120,000 Interest expense          20,000          15,000 Equity in earnings of Sander      (124,000)                  - Net income $     (700,000) $     (230,000)       Retained earnings, 1/1/18 $ (2,800,000) $   (345,000) Net income      (700,000)      (230,000) Dividends paid        200,000          25,000 Retained earnings, 12/31/18 $ (3,300,000) $     (550,000)       Cash $     535,000 $     115,000 Accounts receivable        575,000        215,000 Inventories        990,000        800,000 Investment in Sander      1,420,000                  - Buildings and equipment      1,025,000        863,000 Patents        950,000        107,000 Total assets $   5,495,000 $   2,100,000       Accounts payable $   (450,000) $   (200,000) Notes payable      (545,000)      (450,000) Common stock      (900,000)      (800,000) Additional paid-in capital      (300,000)      (100,000) Retained earnings 12/31/18    (3,300,000)      (550,000) Total liabilities and stockholders' equity $ (5,495,000) $ (2,100,000)       a. Prepare a schedule that calculates the Equity in Earnings of Sander account balance.  b. Prepare a worksheet to arrive at consolidated figures for external reporting purposes. At year-end, there are no intra-entity payables or receivables?

On January 1, 2016, Plymouth Corporation acquired 80 percent of the outstanding voting stock of Sander Company in exchange for $1,200,000 cash. At that time, although Sander’s book value was $925,000, Plymouth assessed Sander’s total business fair value at $1,500,000. Since that time, Sander has neither issued nor reacquired any shares of its own stock.

The book values of Sander’s individual assets and liabilities approximated their acquisition-date fair values except for the patent account, which was undervalued by $350,000. The undervalued patents had a five-year remaining life at the acquisition date. Any remaining excess fair value was attributed to goodwill. No goodwill impairments have occurred.

Sander regularly sells inventory to Plymouth. Below are details of the intra-entity inventory sales for the past three years:

a. Prepare a schedule that calculates the Equity in Earnings of Sander account balance. 

b. Prepare a worksheet to arrive at consolidated figures for external reporting purposes. At year-end, there are no intra-entity payables or receivables?