L Co. owns a controlling interest in M Co. and Q Co. L Co. purchased an 80% interest in M Co. at a time when M Co. reported retained earnings of $500,000. L Co. purchased a 70% interest in Q Co. at a time when Q Co. reported retained earnings of $50,000. There was no acquisition differential for either of these acquisitions.
An analysis of the changes in retained earnings of the three companies during the current year appears below:

Q Co. sells parts to L Co., which after further processing and assembly are sold by L Co. to M Co., where they become a part of the finished product sold by M Co. Intercompany profits included in raw materials inventories at the beginning and end of the current year are estimated as follows:

L Co. uses the cost method to account for its investments and income tax allocation at a 40% rate when it prepares consolidated financial statements.
Required:
(a) Calculate consolidated profit attributable to M Co€™s shareholders for the current year.
(b) Calculate consolidated retained earnings at the beginning of the current year.

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L Co. M Co. Q Co. Retained earnings balance, beginning of current year $976,000 843,000 $682,000 Profit Dividends paid or declared Retained earnings balance, end of current year $1,306,000 $1,003,000 772,000 580,000 (250,000) (200,000 150,000 360,000 240,000 Beginning inventory Ending inventory Intercompany profit in raw materials inventory On sales from Q to L On sales from L to M $80,000 52,000 35,000 118,000