33) Bowen Limited purchased 60% of Sloch Co. when Sloch's reported retained earnings of $330,000. Bowen also owns 80% in Zeek Limited, which was purchased when Zeek reported retained earnings of $575,000. For each acquisition, the purchase price was equal to the fair value of the identifiable net assets which was the same as the carrying value of their carrying values.

An analysis of the changes in retained earnings of the three companies at December 31, 20X7 was:

	Bowen	Sloch	Zeek
Retained earnings January 1, 20X7	$1,020,000	$525,000	$875,000
Net income for the year	750,000	360,000	275,000
Dividends paid	(500,000)	(200,000)	(100,000)
Retained earnings December 31, 20X7	$1,270,000	685,000	$1,050,000

Sloch sells product to Bowen that is used in Bowen's production. Bowen will then sell part of its products to Zeek.

Intercompany profits included on sales from Sloch to Bowen were $25,000 included in January 1, 20X7 inventory and $40,000 included in December 31, 20X7 inventory.

Intercompany profits included on sales from Bowen to Zeek were $31,000 included in January 1, 20X7 inventory and $35,000 included in December 31, 20X7 inventory.

During 20X5, Bowen sold a building to Zeek for a gain of $300,000. The building had a remaining life of 25 years. During 20X7, Sloch sold a building to Bowen for a gain of $75,000. This building has a useful remaining life of 15 years. Full depreciation has been recorded in the year of acquisition by each company and no depreciation is recorded in the year of sale.

Required:

Calculate the consolidated retained earnings and balance of the non-controlling interest as at December 31, 20X7.

: Realized and unrealized profits

Realized profits in inventory from downstream sales (Bowen to Zeek) $31,000

Realized profits in inventory from upstream sales (Sloch to Bowen)$25,000

Unrealized profits in inventory from downstream sales (Bowen to Zeek) $35,000

Unrealized profits in inventory from upstream sales (Sloch to Bowen) $40,000

20X5-Unrealized sale of building downstream sale $300,000

Excess depreciation each year $300,000/25 = $12,000 annually

20X7 - Unrealized sale of building upstream sale $75,000 (Sloch to Bowen)

Excess depreciation each year $75,000/15 = $5,000 annually

Intercompany dividends:

Sloch dividends paid $200,000; $120,000 paid to Bowen (60%)

Zeek dividends paid $100,000; $80,000 paid to Bowen (80%)

Calculation of balance of NCI as at December 31, 20X7

	$	$
Sloch's balance of NCI at acquisition 60% $330,000		198,000
Sloch's portion of the adjusted change in retained earnings
Sloch's retained earnings Dec 31, 20X7	685,000
Less retained earnings at acquisition	(330,000)
Unrealized profits in inventory upstream sales	(40,000)
Less gain on upstream sale of building	(75,000)
Add realized amount on sale of building	5,000
Sloch's adjusted retained earnings	245,000
Sloch's portion at 40% $245,000		98,000
Zeek's balance of NCI at acquisition 20% 575,000		115,000
Zeek's share of increase in Zeek's retained earnings
Zeek's retained earnings Dec 31, 20X7	1,050,000
Less retained earnings at acquisition	(575,000)
Adjusted retained earnings	475,000
Zeek's portion at 20% $475,000		95,000
Consolidated retained earnings December 31, 20X7.		506,000

Calculation of the consolidated retained earnings - December 31, 20X7

	$	$
Bowen's separate entity retained earnings Dec 31 20X7		1,270,000
Bowen's share of increase in Sloch's retained earnings
Sloch's retained earningsDec 31, 20X7	685,000
Less retained earnings at acquisition	(330,000)
Unrealized profits in inventoryupstream sales	(40,000)
Less gain on upstream sale of building	(75,000)
Add realized amount on sale of building	5,000
Sloch's adjusted retained earnings	245,000
Bowen's portion at 60% $245,000		147,000
Bowen's share of increase in Zeek's retained earnings
Zeek's retained earningsDec 31, 20X7	1,050,000
Less retained earnings at acquisition	(575,000)
Adjusted retained earnings	475,000
Bowen's portion at 80% $475,000		380,000
Unrealized profits in inventorydownstream sales		(35,000)
Unrealized gain on downstream sale of building in 20X5		(300,000)
Realized portion of this gain 20X5-20X7 3 $12,000		36,000
Consolidated retained earnings December 31, 20X7.		1,498,000

Type: ES Page Ref: 265-270; 272-288

Difficulty: Difficult