(ABC) Corp. purchased 70% of the outstanding shares of (XYZ) Ltd. on January 1, Year 2, at a cost of $103,110. (ABC) has always used the equity method to account for its investments. On January 1, Year 2, (XYZ) had common shares of $50,000 and retained earnings of $35,600, and fair values were equal to carrying amounts for all its net assets, except inventory (fair value was $6,600 less than carrying amount) and equipment (fair value was $19,500 greater than carrying amount). The equipment, which is used for research, had an estimated remaining life of six years on January 1, Year 2.

The following are the financial statements of (ABC) Corp. and its subsidiary (XYZ) Ltd. as at December 31, Year 5:

Additional Information

During Year 5, (XYZ) made a cash payment of $2,800 per month to (ABC) for management fees, which is included in (XYZ) s Miscellaneous expenses.

During Year 5, (ABC) made intercompany sales of $145,000 to (XYZ) . The December 31, Year 5, inventory of (XYZ) contained goods purchased from (ABC) amounting to $43,500. These sales had a gross profit of 35%.

On April 1, Year 5, (ABC) acquired land from (XYZ) for $34,500. This land had been recorded on (XYZ) s books at a carrying amount of $28,000. (ABC) paid for the land by signing a $34,500 note payable to (XYZ) , bearing yearly interest at 10%. Interest for Year 5 was paid by (ABC) in cash on December 31, Year 5. This land was still being held by (ABC) on December 31, Year 5.

The value of consolidated goodwill remained unchanged from January 1, Year 2, to July Year 5. On July 1, Year 5, a valuation was performed, indicating that the recoverable amount of consolidated goodwill was $5,400.

During the year ended December 31, Year 5, (ABC) paid dividends of $80,000 and (XYZ) paid dividends of $20,000.

(XYZ) and (ABC) pay taxes at a 40% rate. Assume that none of the gains or losses were capital gains or losses.

Required:

(a) Prepare, in good form, a calculation of goodwill and any undepleted acquisition differential as of December 31, Year 5.

(b) Prepare (ABC)s consolidated income statement for the year ended December 31, Year 5, with expenses classified by function.

(c) Calculate the following balances that would appear on (ABC)s consolidated balance sheet as at December 31, Year 5:

i.Inventory

ii.Land

iii.Notes Payable

iv.Non Controlling Interest

BALANCE SHEETS At December 31, Year 5 INCOME STATEMENTS For the year ended December 31 , Year 5