35. Palm Company acquired 100 percent of Storm Company’s voting

35. Palm Company acquired 100 percent of Storm Company’s voting stock on January 1, 2011,by issuing 10,000 shares of its $10 par value common stock (having a fair value of $14 pershare). As of that date, Storm had stockholders’ equity totaling $105,000. Land shown onStorm’s accounting records was undervalued by $10,000. Equipment (with a 5-year remain-ing 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 end-ing December 31, 2015. There were no intra-entity payables on that date. Credit balances areindicated by parentheses.PalmCompany StormCompanyRevenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (485,000) $(190,000)Cost of goods sold. . . . . . . . . . . . . . . . . . . . . 160,000 70,000Depreciation expense. . . . . . . . . . . . . . . . . . . 130,000 52,000Subsidiary earnings . . . . . . . . . . . . . . . . . . . . (66,000 ) –0–Net income . . . . . . . . . . . . . . . . . . . . . . . . $ (261,000 ) $ (68,000 )Retained earnings, 1/1/15 . . . . . . . . . . . . . . . $ (659,000) $ (98,000)Net income (above) . . . . . . . . . . . . . . . . . . . . (261,000) (68,000)Dividends declared. . . . . . . . . . . . . . . . . . . . . 175,500 40,000Retained earnings, 12/31/15. . . . . . . . . . . . $ (744,500 ) $(126,000 )Current assets . . . . . . . . . . . . . . . . . . . . . . . . $ 268,000 $ 75,000Investment in Storm Company. . . . . . . . . . . . 216,000 –0–Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 427,500 58,000Buildings and equipment (net) . . . . . . . . . . . . 713,000 161,000Total assets . . . . . . . . . . . . . . . . . . . . . . . . $ 1,624,500 $ 294,000Current liabilities . . . . . . . . . . . . . . . . . . . . . . $ (110,000) $ (19,000)Long-term liabilities . . . . . . . . . . . . . . . . . . . . (80,000) (84,000)Common stock . . . . . . . . . . . . . . . . . . . . . . . (600,000) (60,000)Additional paid-in capital. . . . . . . . . . . . . . . . (90,000) (5,000)Retained earnings, 12/31/15 . . . . . . . . . . . . . (744,500 ) (126,000 )Total liabilities and equity. . . . . . . . . . . . . . $(1,624,500 ) $(294,000 )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.