1 Passionfruit Inc. (PFI) acquired 90% of Strawberry Co. (SBC)'s 100,000 common shares on December 31, 2014. PFI paid $1,800,000 for the shares. At the time of the acquisition, SBC's common shares had a carrying value of $900,000 and retained earnings was $800,000. The carrying amount of SBC's assets and liabilities were equal to their fair values, except: The fair value of land exceeded its carrying amount $150,000 The fair value of equipment exceeded its carrying amount by $60,000. Accounts receivable had a fair value that was $15,000 below its carrying amount The equipment had a remaining useful life of 10 years. On December 31, 2020, it was determined that there was goodwill impairment of $25,000. PFI accounts for its investment in SBC using the cost method. The income statements of both PFI and SBC are provided for the year ended December 31, 2020: Sales revenue Other income PFI 18,500,000 SBC 7,000,000 500,000 125,000 19,000,000 7,125,000 Cost of goods sold 5,600,000 2,750,000 Depreciation expense 3,250,000 500,000 Other expenses 1,200,000 210,000 Income before income tax expense 8,950,000 3,665,000 Income tax expense 2,685,000 1,099,500 Net income 6,265,000 2,565,500 In addition, the balance sheets of both PFI and SBC are provided for the year ended December 31, 2020: PFI Current assets 6,100,000 SBC 1,200,000 Investment in SBC 1,800,000 Land 1,000,000 500,000 Property, plant and equipment 4,500,000 4,000,000 Total assets 13,400,000 5,700,000 Current liabilities 4,000,000 700,000 Non-current liabilities 750,000 1,200,000 Common shares 4,750,000 900,000 Preferred shares 400,000 100,000 Retained earnings 3,500,000 2,800,000 Total liabilities and shareholders' equity 13,400,000 5,700,000 Continued on the following page... Additional information: . On January 1, 2020 SBC sold PFI equipment for $275,000 that had an original cost of $500,000 and accumulated depreciation of $350,000. The equipment had a five year useful life remaining at the time of the sale. In 2017 PFI sold SBC land for $300,000 which had an original cost of $100,000. In 2020, SBC sold 50% of this land to an external party for $150,000. All of SBC's sales in 2020 were made to PFI. SBC's gross margin on sales to PFI is 25%. On December 31, 2020 PFI's inventory included $600,000 in goods that had been purchased from SBC. As of December 31, 2020, PFI had fully paid for all of the goods received. On December 31, 2019, PFI had inventory of $400,000 that it had purchased from SBC. SBC's preferred shares are cumulative and pay a dividend of 5%. They are redeemable at 101% and dividends were last paid to preferred shareholders on December 31, 2018. PFI's preferred shares are non-cumulative and non- redeemable. In 2020, SBC paid dividends of $100,000. PFI paid dividends of $500,000. The tax rate for both companies is 30%. Instructions: a) Calculate the acquisition differential for the acquisition of SBC by PFI on December 31, 2014. b) Prepare the acquisition differential allocation, amortization and impairment schedule up to December 31, 2020. c) Prepare a schedule showing unrealized intercompany profits, gains and losses for the period ended December 31, 2020. Show the tax impact for each. d) Calculate the consolidated net income for the period ended December 31, 2020 and show the attribution to PFI and the non-controlling interest (NCI). Round amounts to the nearest dollar. Show ALL calculations for full marks