The Following Balance Sheets Have Been Prepared on December 31

question 10

Essay

The following balance sheets have been prepared on December 31, 2020 for Clarke Corp. and Jensen Inc.
Balance Sheets
$\begin{array}{|l|r|r|}\hline & \text { Clarke } & \text { Jensen } \\\hline \text { Cash } & \$ 30,000 & \$ 20,000 \\\hline \text { Inventory } & \$ 70,000 & \$ 30,000 \\\hline \text { Accounts Receivable } & \$ 180,000 & \$ 70,000 \\\hline \text { Investment in Jensen } & \$ 200,000 & \\\hline \text { Fixed Assets } & \$ 500,000 & \$ 90,000 \\\hline \text { Accumulated Depreciation } & (\$ 280,000) & (\$ 30,000) \\\hline \text { Total Assets } & \$ 700,000 & \$ 180,000 \\\hline \text { Current Liabilities } & \$ 120,000 & \$ 60,000 \\\hline \text { Long-Term Debt } & \$ 400,000 & \$ 20,000 \\\hline \text { Common Shares } & \$ 90,000 & \$ 40,000 \\\hline \text { Retained Earnings } & \$ 90,000 & \$ 60,000 \\\hline \text { Liabilities and Equity } & \$ 700,000 & \$ 180,000\\\hline\end{array}$ Additional Information:
Clarke uses the cost method to account for its 50% interest in Jensen, which it acquired on January 1, 2017. On that date, Jensen's retained earnings were $20,000. The acquisition differential was fully amortized by the end of 2020.
Clarke sold Land to Jensen during 2019 and recorded a $15,000 gain on the sale. Clarke is still using this Land. Clarke's December 31, 2020 inventory contained a profit of $10,000 recorded by Jensen.
Jensen borrowed $20,000 from Clarke during 2020 interest-free. Jensen has not yet repaid any of its debt to Clarke.
Both companies are subject to a tax rate of 20%.
Prepare a Consolidated Balance Sheet for Clarke on December 31, 2020 assuming that Clarke's investment in Jensen is a control investment.

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