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Question 3 (62 marks) 1. Pylon Co. (P) acquired a 90% ownership interest in Spike Co. (5) on 1 Jammy 2017. The fair value of noncontrolling interests was $12,000 at the date of acquisition. 2. P acquired a 30% ownership interest in Anchor Co. (A) on 1 January 2010 3. The following nancial statements relate tothe yearended 31 December 2019. Income Statement and Partial Statement of Changes in Equity fol-the year ended 31 December 2019 Sales$800000 ' ' 0306:000 -._. "'5305500' ' Cost of sales [500,000) 1300,0001 { 180,0001 Gross prot Other income Prot before tax Tax expense [50,0001 [13,0001 1 10,0001 Net prot aer tax 72,000 Dividends declared Retained earnings, 1 January Retained earnings, 31 Dec-her $292,000 $118,000 W Statement of Financial Position 5 asat3lDecemher2019 P s A i Fixed assets, net $250,000 $125,000 $100,000 i Investment in S, at cost 120,000 ' Investment in A, at cost 30,000 i Inventory 75,000 60,000 20,000 Dividend receivable 14,400 Accounts receivable, net 42,000 25,000 30,000 : Cash m 10,000 m E Total assets 536,400 5220.000 W i Accounts payable $70,000 $8,000 $5,000 5 Dividend pagable 30,000 14,000 6,000 Other longberm liabilities 76,400 10,000 10,000 : Share capital 100,000 50,000 30,000 i Retained earnings 260,000 133,000 104,000 ' Total liabilities and equity 0530.400 0220000 3151.010! 4. The following information relates to the statements of financial position at the date of acquisition: S S A A Book value Fair value Book value Fair value Intangible assets $25,000 Inventory $45,000 $65,000 $28,000 28,000 Accounts receivable, net 35,000 31,000 22,000 18,000 Contingent liability (8,000) Other identifiable net assets 30,000 30,000 20.000 20.000 Total identifiable net assets $110,000 $126,000 $70,000 $83,000 Share capital $50,000 $30,000 Retained earnings 60,000 40.000 Total equity $110.000 $70.000 Additional information: a. The intangible assets of A had a remaining useful life of five years from the date of acquisition. b. The undervalued inventory of S at the date of acquisition was sold to third parties within six months of acquisition. C. The differences between the fair value and book value of accounts receivable were due to the additional provision for impairment losses required as at the date of acquisition. The impairment losses were recognized in its separate financial statements by S in 2017 and by A in 2018, respectively. d. The contingent liability of $8,000 in respect of legal claims was paid off by A in 2019 and recognized as an expense by A in 2019. e. There is no change in the share capitals of S and A from the date of acquisition. 5. The following transfers of inventory and fixed assets between P and S were made during 2018 and 2019: Transfers of inventory: 2018 2019 Sales from P to S $12,000 Original cost of inventory $8,000 Cumulative % resold to third parties at year-end 40% 100% Sales from S to P $10,000 Original cost of inventory $12,000 Cumulative % resold to third parties at year-end 30% The loss incurred by S was indicative of an impairment loss of the inventory. Transfer of fixed asset from S to P on 1 July 2019: Transfer price $37,000 Original cost of fixed asset $40,000 Accumulated depreciation $15,000 The original useful life of the fixed asset was four years at the date of purchase. Its remaining useful life was two years at the date of transfer.6. The following transfers of inventory and fixed assets between P and A were made during 2018 and 2019: Transfers of inventory: 2018 2019 Sales from P to A $30,000 Original cost of inventory $15,000 Cumulative % resold to third parties at year-end 70% 90% Sales from P to A $20,000 Original cost of inventory $16,000 Cumulative % resold to third parties at year-end 20% Transfer of fixed asset from A to P on 1 January 2019: Transfer price $42,000 Original cost of fixed asset $45,000 Accumulated depreciation $9,000 The remaining useful life of the fixed asset was four years at the date of transfer. 7. Assume zero residual value and straight-line depreciation method for all fixed assets. 8. Ignore deferred taxes. Required: 1. Prepare the consolidation entries for the year ended 31 December 2019 with brief narratives. (32 marks) 2. Prepare the equity accounting entries for the year ended 31 December 2019 with brief narratives. (15 marks) 3. Prepare the Consolidated Income Statement for the year ended 31 December 2019 and the Consolidated Statement of Financial Position as at 31 December 2019. (15 marks) End of Paper