Hi There,
Could you please solve the question with step by step explanation?
Thanks and Best regards,
Ed
Page 1 Lite Account title PR Debit dit Nov. 12 Supplies Cash 100 15 Accounts receivable 1,400 Sales 1,400 15 yun Cost of goods sold Inventory 900 20 Cash 23,000 Accounts receivable 23,000 Question 1 On January 1, Year 2, Page Company acquired 70% of the outstanding common shares of Sage Ltd. for $45,500 in cash. On that date, Sage had $20,000 in common shares outstanding and $20,000 in retained earnings. At the time of the acquisition, the book value of each of Sage's assets was equal to its fair valuc except for the following: Book value Fair value $20,000 $25,000 Inventory Buildings and equipment Accumulated depreciation $60,000 $60,000 ($10,000) The buildings and equipment had a remaining useful life of 10 years on January 1, Year 2, and the inventory on hand at the time of the purchase was sold in Year 2. Any excess paid over the fair value was for Sage's good reputation in the herb industry, which Page set up as goodwill. Following are the financial statements for Page and Sage at December 31, Year 9. SAGE $ 10,000 20,000 30,000 Separate Entity Balance Sheets December 31, Year 9 PAGE Assets Cash $ 29,500 Accounts receivable (net) 60,000 Inventory 45,000 Investment in Sage (cost method) 45,500 Buildings and equipment 90,000 Accumulated depreciation (20,000 $ 250,000 Liabilities Current liabilities $ 40,000 Deferred income taxes 10,000 $ 50,000 Shareholders' equity Ordinary shares $ 70,000 Retained earnings 130,000 200,000 $ 250,000 100,000 (50,000) $ 110,000 $ 25,000 5,000 $ 30,000 $ 20,000 60,000 80,000 $ 110,000 Statements of Income and Retained Earnings Year Ended December 31, Year 9 PAGE Sales Cost of goods sold Depreciation expense Other expenses Income tax expense $ 650,000 (300,000) 350,000 14,000 231,000 42,000 287,000 63,000 67,000 $ 130,000 SAGE $ 225,000 (112,500) 112,500 12,000 75,500 10,000 97,500 15,000 45,000 Net income Retained earnings - Beginning Retained carnings Ending $ 60,000 Page 3 During Year 8 and Year 9, Sage sold merchandise to Page at a price that provides it with a gross profit of 50%. The Year 9 sale was $10,000. Page's December 31, Year 9, inventory contained $2,000 worth of these purchases from Sage, while the December 31, Year 8, inventory contained $1,000 worth of intercompany merchandise. At the end of Year 9, Page owed Sage $500 for merchandise inventory purchased on account. This liability is non-interest bearing. On December 31, Year 6, Page sold equipment having a cost of $5,000 and accumulated depreciation of $1,000 to Sage for $5,000. The remaining useful life of the equipment at the time of the sale was 10 years. In Year 5 the goodwill impairment test resulted in a $5,000 loss, and for Year 9, goodwill was further impaired by $714. Neither company paid dividends during Year 9. Both companies have a 40% tax rate. Page accounts for Sage using the FVE and cost methods. Required: 1. Prepare Page's consolidated income statement for the year ended December 31, Year 9, and the consolidated balance sheet for December 31, Year 9
