ALT Co$.$ and NIC Co$.$ Financial Information and Requirements

Purchase Information

On January $1,$ Year $5,$ ALT Co$.$ purchased $75\%$ of the outstanding common shares of NIC Co$.$ for $$10,500$ in cash. On that date, the shareholders' equity of NIC consisted of $$2,500$ in common shares and $$4,000$ in retained earnings.

Income Statements for Year Ended December $31,$ Year $10$

Item ALT NIC

Sales $28,00012,500$

Other Income $6,000950$

Cost of Goods Sold $22,0008,250$

Depreciation Expense $3,8002,000$

Other Expenses $3,300800$

Income Tax Expense $1,000600$

Net Income $3,9001,800$

Balance Sheets at December $31,$ Year $10$

Item ALT NIC

Cash and Accounts Receivables $15,0008,000$

Inventory $3,0003,000$

Property, Plant, and Equipment $22,00018,000$

Investment in Sub $10,500$

Total Assets $50,50029,000$

Liabilities $31,50020,500$

Common Shares $5,0002,500$

Retained Earnings $14,0006,000$

Total Liabilities and Shareholders$$ Equity $50,50029,000$

Other Information

$1.$ On January $1,$ Year $5,$ NIC had inventory with a fair value that was $$100$ greater than its carrying value.

$2.$ On January $1,$ Year $5,$ NIC had equipment with a fair value that was $$600$ higher than its carrying value. The equipment had an estimated remaining useful life of $10$ years.

$3.$ Each year, goodwill is evaluated to determine if there was an impairment loss. Goodwill had a recoverable value of $$6,400$ at December $31,$ Year $9$ and $$5,200$ at December $31,$ Year $10.$

$4.$ During Year $10,$ NIC sold merchandise to ALT for $$400,50\%$ of which remains in ALT$$s inventory at December $31,$ Year $10.$ On December $31,$ Year $9,$ the inventory of ALT contained $$115$ of merchandise purchased from NIC. NIC earns a gross margin of $15\%$ on its sales.

$5.$ On January $2,$ Year $7,$ NIC sold land to ALT for $$1,200.$ NIC purchased the land on January $1,$ Year $3$ for $$800.$ In Year $10,$ ALT sold $25\%$ of this land to an outsider.

$6.$ During Year $10,$ ALT declared and paid dividends of $$3,500,$ while NIC declared and paid dividends of $$1,000.$

$7.$ ALT accounts for its investment in NIC using the cost method.

$8.$ Both companies pay income tax at the rate of $25\%.$

Required

a$.$ Calculate the consolidated net income for Year $10.$

b$.$ Calculate the consolidated retained earnings at January $1,$ Year $10.$

c$.$ Prepare the consolidated financial statements for the year ended December $31,$ Year $10.$

d$.$ Prepare the working paper eliminating journal entries for the intercompany sale of inventory for Year $10.$

e$.$ If ALT had used the Identifiable Net Asset method $($see chapter $4),$ briefly explain whether total shareholders' equity for Year $10$ would increase, decrease, or not change.

Hints

Goodwill $=$ $$6,800$

AD left Dec. $31,$ Year $10=$ $$5,440$

Consolidated NI $=$ $$3,755$

Total consolidated assets $=$ $$74,193$