Fundamentals of Advanced Accounting 5th Edition by Joe Ben Hoyle,Thomas Schaefer,Timothy Doupnik

Exercise 12

Palm Company acquired 100 percent of Storm Company's voting stock on January 1, 2009, by issuing 10,000 shares of its $10 par value common stock (having a fair value of $14 per share). 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, 2013. Credit balances are indicated by parentheses.

a. Explain how Palm derived the $66,000 balance in the Subsidiary Earnings account.
b. Prepare a worksheet to consolidate the financial information for these two companies.
c. Explain how Storm's individual financial records would differ if the push-down method of accounting had been applied.