0 P5.3 Consolidation and analytical check on non-controlling interests Prison Co acquired 80% of the stock of Sapphire Co for $300,000 on 1 January 20x7. At acquisition date, Sapphire reported retained earnings of $150,000. The excess of Prism Co's acquisition cost over its share of Sapphire's book value was assigned to buildings and equipment that had a remaining life of ten years at acquisition date and deferred tax liability on the undervalued building and equipment. The purchase consideration paid by Prism Co was proportional to Prism's share of the fair value of Sapphire Co as an entity. Non-controlling interests are to be measured at its share of fair value of Sapphire Co as at acquisition date. The financial statements of the two companies for the year ended 31 December 20x9 are shown below. Investment in Sapphire Co was carried at cost. Statements of Financial Position As at 31 December 20x9 Prism Sapphire Sales $1,000,000 $ 480,000 Cost of goods sold (640,000) (320,000) Dividend income 16,000 Depreciation expense (100,000) (10,000) Interest expense ...**** (72,000) (14,000) Tax and other expenses (44,000) (76,000) Profit retained $ 160,000 $ 60,000 Retained earnings, 1 January 580,000 300,000 Dividends declared (40,000) (20,000) Retained earnings, 31 December $ 700,000 $ 340,000 Cash and receivables $ 620,000 $ 420,000 Inventory 640,000 270,000 Land 260,000 150,000 Buildings and equipment, cost 1,500,000 Investment in Sapphire, cost 300,000 Debits $3,320,000 $1,040,000 Accumulated depreciation $1,000,000 $ 80,000 Payables 1,220,000 420,000 Share capital 400,000 200,000 Retained earnings 700,000 340,000 Credits $3,320,000 $1,040,000 ... 200,000 On 1 January 20x9, Prism Co held inventory purchased from Sapphire Co during 20x8 for $15,000, which had been manufactured by Sapphire at a cost of $10,000. During 20x9, Sapphire sold goods costing $40,000 to Prism Co for $60,000. Prism sold the inventory on hand at the beginning of the year, but continued to hold 40% of its 20x9 purchases from Sapphire on 31 December 20x9. Tax rate was 20% Required: 1. Prepare all necessary consolidation elimination and adjustment entries for the year ended 2. Prepare the consolidation worksheets for the year ended 31 December 20x9. 31 December 20x9. 302 ADVANCED FINANCIAL ACCOUNTING 3. Perform an analytical check on the non-controlling interests' balance as at 31 December 20x9. 4. Determine the following consolidated amounts as at 31 December 20x9 analytically and compare with the balances in your consolidation worksheets in Part 3: (a) Inventory (b) Buildings and equipment, net of accumulated depreciation (c) Retained earnings. 0 P5.3 Consolidation and analytical check on non-controlling interests Prison Co acquired 80% of the stock of Sapphire Co for $300,000 on 1 January 20x7. At acquisition date, Sapphire reported retained earnings of $150,000. The excess of Prism Co's acquisition cost over its share of Sapphire's book value was assigned to buildings and equipment that had a remaining life of ten years at acquisition date and deferred tax liability on the undervalued building and equipment. The purchase consideration paid by Prism Co was proportional to Prism's share of the fair value of Sapphire Co as an entity. Non-controlling interests are to be measured at its share of fair value of Sapphire Co as at acquisition date. The financial statements of the two companies for the year ended 31 December 20x9 are shown below. Investment in Sapphire Co was carried at cost. Statements of Financial Position As at 31 December 20x9 Prism Sapphire Sales $1,000,000 $ 480,000 Cost of goods sold (640,000) (320,000) Dividend income 16,000 Depreciation expense (100,000) (10,000) Interest expense ...**** (72,000) (14,000) Tax and other expenses (44,000) (76,000) Profit retained $ 160,000 $ 60,000 Retained earnings, 1 January 580,000 300,000 Dividends declared (40,000) (20,000) Retained earnings, 31 December $ 700,000 $ 340,000 Cash and receivables $ 620,000 $ 420,000 Inventory 640,000 270,000 Land 260,000 150,000 Buildings and equipment, cost 1,500,000 Investment in Sapphire, cost 300,000 Debits $3,320,000 $1,040,000 Accumulated depreciation $1,000,000 $ 80,000 Payables 1,220,000 420,000 Share capital 400,000 200,000 Retained earnings 700,000 340,000 Credits $3,320,000 $1,040,000 ... 200,000 On 1 January 20x9, Prism Co held inventory purchased from Sapphire Co during 20x8 for $15,000, which had been manufactured by Sapphire at a cost of $10,000. During 20x9, Sapphire sold goods costing $40,000 to Prism Co for $60,000. Prism sold the inventory on hand at the beginning of the year, but continued to hold 40% of its 20x9 purchases from Sapphire on 31 December 20x9. Tax rate was 20% Required: 1. Prepare all necessary consolidation elimination and adjustment entries for the year ended 2. Prepare the consolidation worksheets for the year ended 31 December 20x9. 31 December 20x9. 302 ADVANCED FINANCIAL ACCOUNTING 3. Perform an analytical check on the non-controlling interests' balance as at 31 December 20x9. 4. Determine the following consolidated amounts as at 31 December 20x9 analytically and compare with the balances in your consolidation worksheets in Part 3: (a) Inventory (b) Buildings and equipment, net of accumulated depreciation (c) Retained earnings