Assume that all of the facts in Problem 3 remain unchanged except that Green paid $211,800 for 60% of the voting shares of Mansford.

Required:

(a) Prepare a consolidated balance sheet at January 1, Year 5.

(b) Calculate goodwill and non-controlling interest under parent company extension theory. 

(c) Explain how the definition of a liability supports the recognition of a deferred income tax liability when a parent purchases shares in a subsidiary and the fair values of the subsidiary's identifiable net assets are greater than their carrying amounts.

Problem 3:

On January 1, Year 5, Green Inc. purchased 100% of the common shares of Mansford Corp. for $353,000. Green's balance sheet data on this date just prior to this acquisition were as follows:

The balance sheet and other related data for Mansford are as follows:

Additional Information:

• As at January 1, Year 5, the estimated useful lives of the building and equipment were 15 years and 4 years, respectively, and the term to maturity was 10 years for the noncurrent liabilities. 

• There has been no goodwill impairment since the date of acquisition.

• For both companies, the income tax rate is 35%. Deferred income taxes are recognized on the consolidated financial statement pertaining to the temporary differences arising from the acquisition differential.

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Carrying Amount $ 355,300 Тах Base $ 355,300 Cash Accounts receivable 168,100 -0- Inventory 275,920 275,920 Land 327,700 327,700 Buildings (net) Equipment (net) 252,700 150,000 46,200 $1,155,120 79,900 $1,459,620 $ 137,500 $ 137,500 Current liabilities Deferred tax liability 106,575 Noncurrent liabilities Common shares 387,200 Retained earnings 828,345 $1,459,620 MANSFORD CORP.-BALANCE SHEET At January 1, Year 5 Carrying Amount Fair Value Тах Base Cash $ 54,300 $ 54,300 $ 54,300 Accounts receivable 64,150 64,150 64,150 Inventory 128,000 135,800 128,000 Land 93,000 228,000 93,000 Buildings (net) 39,000 42,000 16,800 Equipment (net) 27,800 26,800 15,600 $406,250 $551,050 $371,850 Current liabilities $ 43,815 $ 43,815 $ 43,815 Noncurrent liabilities 153,600 155,000 153,600 Deferred tax liability 12,040 Common shares 105,400 Retained earnings 91,395 $406,250