Assignment $$ Show all calculations for partial credit

Chapter $5$ Problem: $($hint: like Palm and Storm; use your class notes chapter postings and the video for this question for support.$)$

On December $31,$ Year $2,$ P Inc. purchased $80\%$ of the outstanding ordinary shares of S Com$-$pany for $$310,000.$ At that date, S had ordinary shares of $$200,000$ and retained earnings of $$60,000.$ In negotiating the purchase price, it was agreed that the assets on S$$s statement of financial position were fairly valued except for plant assets, which had a $$40,000$ excess of fair value over carrying amount. It was also agreed that S had unrecognized intangible assets consisting of trademarks that had an estimated value of $$24,000.$ The plant assets had a remaining useful life of eight years at the acquisition date and the trademarks would be amortized over a $12-$year period. Any goodwill arising from this business combination would be tested periodically for impairment. P accounts for its investment using the cost method.

Additional Information:

$$ At December $31,$ Year $6,$ an impairment test of S$$s goodwill revealed its recoverable amount is $$50,000$

$$ An impairment test indicated that the trademarks had a recoverable amount of $$13,750.$

The impairment loss on these assets $($goodwill and trademarks$)$ occurred entirely in Year $6.$

$$ On December $26,$ Year $6,$ P declared dividends of $$36,000,$ while S declared dividends of $$20,000.$

$$ Amortization expense is reported in selling expenses, while impairment losses are reported in other expenses.

Financial statements for P and S for the year ended December $31,$ Year $6,$ were as follows:

STATEMENTS OF FINANCIAL POSITION

December $31,$ Year $6$

P S

Assets

Plant assets$$net $ $230,000$ $ $160,000$

Investment in Storm $310,000$

Other investments $82,00022,000$

Notes receivable $10,000$

Inventory $100,000180,000$

Accounts receivable $88,000160,000$

Cash $20,00030,000$

$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_$

$ $830,000$ $ $562,000$

Shareholders$$ Equity and Liabilities

Ordinary shares $ $500,000$ $ $200,000$

Retained earnings $110,000150,000$

Notes payable $130,000100,000$

Other current liabilities $10,00050,000$

Accounts payable $80,00062,000$

$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_$

$ $830,000$ $ $562,000$

$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_$

INCOME STATEMENTS

For the year ended December $31,$ Year $6$

P S

Sales $ $870,000$ $ $515,000$

Cost of goods sold $(638,000)(360,000)$

$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_$

Gross profit $ $232,000$ $ $155,000$

Selling expenses $(22,000)(35,000)$

Other expenses $(148,000)(72,000)$

Interest and dividend income $34,0002,000$

$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_$

Profit $ $96,000$ $ $50,000$

$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_$

Required:

a$)$ Calculate the acquisition differential, goodwill and non$-$controlling interest at acquisition date, December $31,$ Year $2.$ Prepare the acquisition eliminating entry at acquisition date on the consolidation worksheet.

b$)$ Prepare the schedule of amortization of acquisition differential and impairment$)$

c$)$ Calculate consolidated net income for the year ended December $31,$ Year $6.$ Separate the portion attributable to P and to non$-$controlling interest.

d$)$ Prepare the consolidated income statement for year $6.$ Show attribution to each shareholder group.

e$)$ Calculate the ending balance of consolidated retained earnings at December $31,$ Year $6.$

f$)$ Calculate the ending balance of non$-$controlling interest that would appear on the consolidated balance sheet at December $31,$ Year $6$

g$)$ Calculate the balance of $$Plant Assets @ net$$ that would show on the consolidated balance sheet at December $31,$ Year $6.$

h$)$ Calculate the balance of ordinary $($common$)$ shares on the consolidated balance sheet at December $31,$ Year $6.$

i$)$ Assume that P used the equity method to record its investment in S$.$ What would be the value of the Investment in S account on the P$$s separate entity balance sheet at December $31,$ Year $6.$ Check Figures:

$$ Consolidated Net income before attribution $=107,250$

$$ Interest and Dividend income: $20,000$

$$ Consolidated RE at Dec $31,$ year $6=147,000($hint: start with ending RE of each separate entity$)$

$$ NCI at Dec $31,$ year $6=8$