FINAL COMPREHENSIVE TEST

The following financial statements were prepared on December 31, 2019:

Post Inc. Stamp Inc.

Cash $ 85,000 $ 45,000 Inventory 225,000 55,000

Property, plant & equipment 405,000 595,000

Investment in Stamp Inc. at cost 800,000 -

Total Assets $1,515,000 $ 695,000

Current Liabilities $ 68,000 $ 91,000

Common Shares 875,000 310,500

Retained Earnings 572,000 293,500

Total Liabilities and Equity $1,515,000 $ 695,000

Post Inc. Stamp Inc.

Sales $ 890,000 $ 305,000 Gain on Sale of Land 60,000 -

Dividend income 40,000 -

990,000 305,000

Cost of sales 495,000 125,000

Amortization expenses 87,000 15,000

Administrative expense 22,000 11,000

Income tax expense 50,000 25,000

Net Income $ 336,000 $ 129,000

Additional Information:

• Post purchased 80% of the outstanding voting shares of Stamp for $800,000 on January 1, 2017, at which time Stamps retained earnings were $45,500, and common shares were $310,500. The fair values of Stamps net asset were equal to their fair value, except for the following:
  • Inventory = fair value was $7,000 greater than book value
  • Equipment = fair value was $350,000 greater than book value - equipment had a remaining useful life ten years

• During 2019, a goodwill impairment loss of $20,000 was recognized. Impairments are grouped with amortization expense.

• During 2019, inventory sales from Stamp to Post were $25,000. At the end of the year, Posts inventories contained merchandise purchased from Stamp for $20,000. A gross margin of 30% is recognized on its intercompany sales.

• During 2019, Post sold a parcel of land to Stamp for $155,000. Post recorded a gain of $60,000 before taxes.

• Stamp paid out $50,000 in dividends and Post recorded $40,000 ($50,000 * 80%) of dividend revenue in 2019. Any impairment losses are grouped with administrative expenses.

• Assume a 40% tax rate

Required:

1. Calculate the amount of the acquisition differential and the amount of goodwill arising from this combination. Also, state any intercompany items/transactions. (7 marks)
2. Calculate:
   1. Consolidated Net Income as well as the Amount Attributable to NCI and the Amount Attributable to Posts Shareholders for the year ended December 31, 2019 (5 marks)
   2. Consolidated NCI on the Balance Sheet at December 31, 2019 (4 marks)
   3. Consolidated Sales for the year ended December 31, 2019 (2 marks)
   4. Consolidated Cost of Goods Sold for the year ended December 31, 2019 (3 marks)
   5. Consolidated Income Tax Expense for the year ended December 31, 2019 (2 mark)
   6. Consolidated Equipment on the Balance Sheet at December 31, 2019 (2 marks)