Palm Co. acquired 100 percent of the voting stock of Storm Company on January 1, 2003, by issuing 10,000 shares of its $10 a par value common stock (having fair value of $13. per share). Palm also paid $10,000 in acquisition fees to lawyers and investments analysis. As of that date, Storm had stockholders' equity totaling $105,000. Land shown on Storm's accounting records was undervalued by $10,000 Equipment (with a five year life) was undervalued by $5,000. A secret formula developed by Storm was appraised at $20,000 with an estimated life of 20 years.
Following are the separate financial statements for the two companies for the year ending December 31, 2007. Credit balances are indicated by parentheses.
a- How was the $66,000 balance in the Subsidiary Earnings account derived?
b- Prepare a worksheet to consolidate the financial information for these two companies. (I have done most of the work-see attached spreadsheet p3-29 tab)
c- How would Storm's individual financial records fifer if the push-down method of accounting had been applied?.