Consolidation Question - (46 - Marks)

PILL Company (Parent) purchased 80% of the voting shares of Snake Ltd. (Snake) for $630,000 on January 1, 2021. On that date, Snake's common shares and retained earnings were valued at $300,000 and $150,000 respectively. Unless otherwise stated, assume that PILL uses the cost method to account for its investment in Snake. Snake's fair values approximated its carrying values with the following exceptions: The trademark had a fair value which was $80,000 higher than its carrying value. The bonds payable had a fair value which was $30,000 higher than their carrying value. The trademark had a useful life of twenty years remaining from the date of acquisition. The bonds payable mature on January 1, 2041. Both companies use straight line amortization exclusively. The financial statements of both companies for the year ended December 31, 2023, are shown below:

A goodwill impairment test conducted in 2023 revealed that Snake's goodwill amount on the date of acquisition had been impaired by $10,000

During 2022, PILL sold inventory to Snake for $60,000. 80% of which was sold to outsiders during the year.

During 2023, PILL sold inventory to Snake for $80,000. 75% of this inventory was resold by Snake to outside parties during that year.

During 2022, Snake sold inventory to Pill for $100,000. 70% of which was sold to outsiders during the year.

During 2023, Snake sold inventory to PILL for $120,000. 60% of this inventory was resold by PILL to outside parties during that year.

On April 1, 2023, PILL sold land to Snake for $190,000. PILL originally acquired the land for $40,000 in 2015.

All intercompany sales as well as sales to outsiders are priced 25% above cost. The effective tax rate for both companies is 40%. Assume that any gain on the sale of land is fully taxable.

Required

1. Compute PILL's goodwill at the date of acquisition. Show Calculation and Allocation of acquisition differential. (7 marks)
2. Prepare a schedule detailing the realized and unrealized before tax and after-tax profits or gains resulting from the intercompany transactions for 2023. (10 marks)
3. Compute PILL's consolidated net income for 2023. (8 marks)
4. Calculate the non-controlling interest that would appear on the consolidated balance sheet as at December 31, 2023. (5 marks)
5. Calculate Consolidated Retained Earnings as at December 31, 2023. (8 marks)
6. Prepare PILL's Consolidated Statement of Financial Position as at December 31, 2023. (8 marks)

Income Statements Retained Earnings Statements Balance Sheets \begin{tabular}{|c|c|c|} \hline & PILL & Snake \\ \hline Cash & $100,000 & $90,000 \\ \hline Accounts receivable & 270,000 & 190,000 \\ \hline Inventory & 350,000 & 110,000 \\ \hline Investment in Snake & 630,000 & \\ \hline Equipment (net) & 520,000 & 150,000 \\ \hline Land & - & 250,000 \\ \hline Trademark & = & 150,000 \\ \hline Total assets & $1,870,000 & $940,000 \\ \hline Current liabilities & $300,000 & $110,000 \\ \hline Bonds payable & 450,000 & 150,000 \\ \hline Common shares & 500,000 & 300,000 \\ \hline Retained earnings & 620,000 & 380,000 \\ \hline Total liabilities and equity & $1,870,000 & $940,000 \\ \hline \end{tabular}