Assignment 2: Consolidation Question POP Inc. purchased 90% of the voting shares of SOS for $1,000,000 cash on January 1, 2013; in addition, the purchase agreement also included a contingent consideration payable in cash on January 1, 2019. Assume that since the acquisition date management believes that $170,000 is the contingent consideration likely to become payable on January 1, 2019 (ignore time value of money). POP uses the cost method to account for its investment. On that date, SOS's Common Stock and Retained Earnings were valued at $300,000 and $600,000 respectively SOS's fair values approximated its carrying values with the following exceptions .The equipment had a fair value which was S 80,000 higher than its carrying value, and was estimated to have a remaining useful life of 8 years from the date of acquisition with no salvage value sold by SOS in 2013 the reputation of the work force should be valued at $200,000 . SOS's inventory had a fair value which was S2,000 less than book value. This inventory was . SOS's skilled workforce had an exceptional reputation in the industry. Experts believed that Both companies use straight line amortization exclusively for all assets and liabilities. The effective tax rate for both companies is 40%. The Financial Statements of POP & SOS for the Year ended December 31, 2016 are shown below: Income Statements POP Inc SOS Inc S1,300,000 $400,000 $830,000 $200,000 Other Revenues Less: Expenses Cost of Goods Sold Depreciation Expense Other Expenses Income Tax Expense $700,000 $30,000 $120,000 $170,000 $330,000 S20,000 $140,000 $120,000 Net Income S680,000 S420,000 Retained Earnings Statements Balance, Jan 1, 2016 Net Income Less: Dividends S1,000,000 $680,000 (S200,000) $800,000 $420,000 (S140,000) Retained Earnings S1,480,000 S1.080,000