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On January 1, 2013, Plymouth Corporation acquired 80 percent of the outstanding voting stock of Sander Company in exchange for $1,200,000 cash. At that time, although Sanders book value was $925,000, Plymouth assessed Sanders 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 Sanders 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 5-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:

Year	Intra-Entity Sales			Intra-Entity Ending Inventory at Transfer Price			Gross Profit Rate on Intra-Entity Inventory Transfers
2013	$	125,000		$	80,000			25%
2014		220,000			125,000			28%
2015		300,000			160,000			25%

Separate financial statements for these two companies as of December 31, 2015, follow:

		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)		0
Net income	$	(700,000)	$	(230,000)
Retained earnings 1/1/15	$	(2,800,000)	$	(345,000)
Net income		(700,000)		(230,000)
Dividends declared		200,000		25,000
Retained earnings 12/31/15	$	(3,300,000)	$	(550,000)
Cash	$	535,000	$	115,000
Accounts receivable		575,000		215,000
Inventory		990,000		800,000
Investment in Sander		1,420,000		0
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 12/31/15		(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.

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