Consolidation Question POP Inc purchased 90 of the voting shares of SOS Inc for $1,000,000 cash on January 1, 20X3 in addition, the purchase agreement also included a contingent consideration payable in cash on January 1, 20X9 Assume that since the acquisition date management believes that $200,000 is the contingent consideration likely to become payable on January 1, 20X9 (ignore time value of money) POP uses the cost method to account for its investment On that date, SOSs Common Stock and Retained Earnings were valued at $300,000 and $500,000 respectively SOSs fair values approximated its carrying values with the following exceptions The equipment had a fair value which was $ 120,000 higher than its carrying value, and was estimated to have a remaining useful life of 10 years from the date of acquisition with no salvage value SOSs inventory had a fair value which was $15,000 less than book value This inventory was sold by SOS in 20X3 SOSs skilled workforce had an exceptional reputation in the industry Experts believed that the reputation of the work force should be valued at $200,000 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, 20X6 are shown below Income Statements POP Inc SOS Inc Sales $1,300,000 $830,000 Other Revenues $400,000 $200,000 Less Expenses Cost of Goods Sold $700,000 $330,000 Depreciation Expense $30,000 $20,000 Other Expenses $120,000 $140,000 Income Tax Expense $170,000 $120,000 Net Income $680,000 $420,000 Retained Earnings Statements Balance, Jan 1, 2016 $1,000,000 $800,000 Net Income $680,000 $420,000 Less Dividends ($200,000) ($140,000) Retained Earnings $1,480,000 $1 080,000 Balance Sheets POP Inc SOS Inc Cash $100,000 $340,000 Accounts Receivable $300,000 $410,000 Inventory $320,000 $475,000 Investment in SOS Inc $1,000,000 Land $100,000 $80,000 Equipment (net) $220,000 $210,000 Total Assets $2,040,000 $1,515,000 Current Liabilities $160,000 $135,000 Common Shares $400,000 $300,000 Retained Earnings $1,480,000 $1,080,000 Total Liabilities and Equity $2,040,000 $1,515,000 Other Information During 20X6, SOS sold a parcel of land to POP for $100,000 cash SOS had purchased this land in 2012 for $60,000 POP is currently using the land to hold excess inventory During 20X6 POP charged SOS $50,000 of rental fees SOS did not pay this amount in 2016 but expects to pay the full $50,000 sometime in 20X7 During December 20X6, SOS sold inventory to POP for $100,000 cash, the cost of the inventory to SOS was $70,000 50 of these goods remained in POPs inventory at the end of 2016 During December 20X5, POP sold inventory to SOS for $60,000 cash, the cost of the inventory to POP was $40,000 40 of these goods remained in SOSs inventory at the end of 20X5 SOS eventually sold the entire inventory to an outside customer in 20X6 Year 20X4 there was impairment in GW of $30,000 requirement Calculate Goodwill at the time of Acquisition What is the value for Sales on Consolidated Income statement What is the COGS on Consolidated Income Statement What is the Other Income on Consolidated Income Statement

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Consolidation Question POP Inc  purchased 90  of the voting shares of SOS Inc for $1,000,000 cash on January 1, 20X3  in addition, the purchase agreement also included a contingent consideration payable in cash on January 1, 20X9  Assume that since the acquisition date management believes that $200,000 is the contingent consideration likely to become payable on January 1, 20X9 (ignore time value of money)  POP uses the cost method to account for its investment  On that date, SOSs Common Stock and Retained Earnings were valued at $300,000 and $500,000 respectively  SOSs fair values approximated its carrying values with the following exceptions  The equipment had a fair value which was $ 120,000 higher than its carrying value, and was estimated to have a remaining useful life of 10 years from the date of acquisition with no salvage value  SOSs inventory had a fair value which was $15,000 less than book value  This inventory was sold by SOS in 20X3  SOSs skilled workforce had an exceptional reputation in the industry  Experts believed that the reputation of the work force should be valued at $200,000  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, 20X6 are shown below  Income Statements POP Inc  SOS Inc  Sales $1,300,000 $830,000 Other Revenues $400,000 $200,000 Less  Expenses  Cost of Goods Sold  $700,000 $330,000 Depreciation Expense $30,000 $20,000 Other Expenses $120,000 $140,000 Income Tax Expense $170,000 $120,000 Net Income $680,000 $420,000 Retained Earnings Statements Balance, Jan 1, 2016 $1,000,000 $800,000 Net Income $680,000 $420,000 Less  Dividends ($200,000) ($140,000) Retained Earnings $1,480,000 $1 080,000 Balance Sheets POP Inc  SOS Inc  Cash $100,000 $340,000 Accounts Receivable $300,000 $410,000 Inventory $320,000 $475,000 Investment in SOS Inc  $1,000,000   Land $100,000 $80,000 Equipment (net) $220,000 $210,000 Total Assets $2,040,000 $1,515,000 Current Liabilities $160,000 $135,000 Common Shares $400,000 $300,000 Retained Earnings $1,480,000 $1,080,000 Total Liabilities and Equity $2,040,000 $1,515,000 Other Information   During 20X6, SOS sold a parcel of land to POP for $100,000 cash  SOS had purchased this land in 2012 for $60,000  POP is currently using the land to hold excess inventory  During 20X6 POP charged SOS $50,000 of rental fees  SOS did not pay this amount in 2016 but expects to pay the full $50,000 sometime in 20X7  During December 20X6, SOS sold inventory to POP for $100,000 cash, the cost of the inventory to SOS was $70,000  50  of these goods remained in POPs inventory at the end of 2016  During December 20X5, POP sold inventory to SOS for $60,000 cash, the cost of the inventory to POP was $40,000  40  of these goods remained in SOSs inventory at the end of 20X5  SOS eventually sold the entire inventory to an outside customer in 20X6  Year 20X4 there was impairment in GW of $30,000  requirement Calculate Goodwill at the time of Acquisition   What is the value for Sales on Consolidated Income statement  What is the COGS on Consolidated Income Statement  What is the Other Income on Consolidated Income Statement

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Consolidation Question POP Inc. purchased 90% of the voting shares of SOS Inc for $1,000,000 cash on January 1, 20X3; in addition, the purchase agreement

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