FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Transcribed Image Text:**How Panther Computed Its $64,125 Equity in Stark's Earnings Balance**
This table outlines the components used by Panther to determine its $64,125 equity in Stark's earnings balance. All amounts should be input as positive values.
| Description | Amount |
|-----------------------------------------|--------------|
| Stark reported net income | ✔️ |
| Beginning inventory gross profit | ✔️ |
| Patented technology amortization | ✔️ |
| Ending inventory gross profit | ✔️ |
| **Equity in Stark’s earnings** | |
Please ensure all calculations adhere to these guidelines to accurately reflect equity.
Transcribed Image Text:**Acquisition and Consolidation Details**
**Background:**
On January 1, 2020, Panther, Inc., acquired all outstanding shares of Stark Corporation for $582,000. Stark's book value was $342,000, but its trademarks and patented technology were assessed to be worth more than their recorded values. The patents had a remaining life of eight years.
**Inventory Transactions:**
- In 2020, Stark sold inventory costing $112,500 to Panther for $225,000.
- By December 31, 2020, Panther had sold 74% of this inventory.
- In 2021, Panther bought $180,000 worth of inventory (original cost $90,000) from Stark.
- At the end of 2021, Panther had $48,600 of inventory from its 2021 purchases.
**Land Sale:**
- In 2021, Stark sold land to Panther for $113,200, recording a $20,000 gain.
- Stark has a $78,000 liability related to the land sale.
**Consolidated Financial Statements:**
- **Revenues**: Panther, Inc. ($893,400), Stark ($398,000)
- **Net Income**: Panther, Inc. ($382,725), Stark ($99,800)
- **Retained Earnings (12/31/21)**: Panther, Inc. ($658,125), Stark ($385,500)
- **Assets**: Panther, Inc. total ($2,269,300), Stark total ($930,100)
- **Liabilities**: Panther, Inc. total ($875,375), Stark total ($318,650)
**Key Assets and Liabilities:**
- **Cash and Receivables**: Panther ($146,000), Stark ($198,000)
- **Inventory**: Panther ($444,500), Stark ($140,800)
- **Investment in Stark**: $765,900
- **Trademarks**: Stark ($74,100)
- **Patented Technology**: Stark ($159,600)
**Equity and Retained Earnings Adjustments:**
- Introduce how Panther computed its $64,125 equity in Stark's earnings:
- Recognize intercompany profits and adjustments for accurate consolidation.
This consolidation aims to merge financial reports effectively, reflecting accurate valuation increases and inventory profits between Panther, Inc. and Stark Corporation.
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