Aesume that Palm Corporation had appropriately used purchase accounting for the December 31 ,2010 business combination with it6 subeidiary, Starr Company. Partial financial statements for both companies tor zAY are below. In addition to the information in the worksheet other 201 1 information follows:
On December 2O,2Al $tarr's Board of Directors paid a cash dividend of $.60 per share on the 40,000 outstanding shares of common stock owned by Palm.
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Palm Corporation and Starr Company
Separate Financial Statement Data
For Year Ended December 31, 2011
(before any year-end 'equity method' entries have been posted)
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Balance Sheets
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Palm Corp
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Starr Co.
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Assets
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Cash
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80,000
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75,000
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Inventories
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136,000
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120,000
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Other Current Assets
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90,000
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111,000
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Intercompany receivable / payable
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Investment in Starr Common Stock
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Plant Assets - Net
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480,000
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290,000
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Patent (Net)
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20,000
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Total Assets
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616,000
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Liabilities and Stockholders' Equity
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Income Taxes Payable
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30,000
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25,000
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Other Liabilities
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259,600
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163,000
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Common Stock, $10 par
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Common Stock, $5 par
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200,000
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Additional Paid in Capital
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60,000
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Retained Earnings
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168,000
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Total Liabilities and Stockholders' Equity
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616.000
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Statements of Income and Retained Earnings
For the Year Ended December 31, 2011
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Balance Sheets
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Palm Corp
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Starr Co.
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Net Sales
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1,000,000
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700,000
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Intercompany Investment Income
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Total Revenue
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1,000,000
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700,000
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Cost of Goods Sold
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571,000
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450,000
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Gross Margin
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429,000
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250,000
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Operating Expenses
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220,000
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130,000 {see Note Below}
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Interest Expense
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45,000
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Income Tax Expense
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65,600
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48,000
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Total Expenses
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330,600
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178,000
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Net Income
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98,400
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72,000
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Beginning Retained Earnings
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120,000
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Less: Dividends
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(20,000)
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(24,000)
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Ending Retained Earnings
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..............
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168,000
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Note: Operating Expense includes $20,000 anci $5,000 oi deprecjation expense for Palm and Starr respectivety.
REQUIRED:
Prepare Parent Company's Equity-Method Journal Entries to record the operating results of the subsidiary and any entry necessary to record depreciation and/or amortization of Subsidiary's Net Assets. Note that with respect to Building Depreciation 1/2 is CoGS and 1D is charged to operating expense. Patent amortization is '100o/" CoGS. Also prepare any necessary year end elimination entry or entries, Prepare a working paper for consolidated financial statements and prepare a complete set of consolidated flnancial statements, in good form for 2011 - be sure to include a consolidated statement of cash flows.