On January 1, 2016 Pierre Corp. purchased 75% of the outstanding shares of Schreiber Ltd. for $120,000 cash. On January 1, 2016 Schreiber had common shares of $80,000 and retained earnings of $25,000 and fair values were equal to book values for all the net assets except the following: Book Value Fair Market Value Inventory $ 80,000 $ 75,000 Equipment 105,000 115,000 Trademarks 32,000 Bonds Payable 100,000 89,587 The equipment had an estimated remaining life of five (5) years on January 1, 2016. The Trademark has a eight (8) year life. The bonds mature December 31, 2022. The 6% bonds pay interest annually December 31. The market rate of interest January 1, 2016 was 8%. Pierre uses the cost method to account for its investment. The testing for impairment as at December 31, 2019 yielded the following fair values (recoverable amount): Trademarks $10,000 Goodwill 15,000 The following are the financial statements of Pierre Corp. and its subsidiary Schreiber Ltd. as at December 31, 2019: BALANCE SHEETS As at December 31, 2019 Pierre Corp Schreiber Ltd. $ 45,000 85,000 Cash Accounts Receivable Note receivable Inventory Equipment (net) Land Investment in Schreiber (cost method) 65,000 180,000 135,000 120,000 $630,000 $ 15,000 55,000 55,000 65,000 140,000 60,000 $390,000 $ 55,000 98,000 Bank Loan Payable Accounts Payable Bond Payable Note Payable Common Shares Retained Earnings $ - 15,000 100,000 55,000 150,000 272,000 $630.000 80,000 195,000 $390.000 STATEMENTS OF INCOME AND RETAINED EARNINGS Year ended December 31, 2019 Pierre Corp. Schreiber Ltd. Sales $843,250 $375,000 Investment income 10,000 5,000 Dividend Income 22,500 $875,750 $380,000 Cost of Sales 500,000 225,000 Amortization expense-equipment 50,000 15,000 Interest expense 25,000 15,000 Miscellaneous expenses 95,000 25,000 Income Taxes 85,000 40,000 755,000 320,000 Net Income 120,750 60,000 Retained earnings, Beginning of year 181,250 165,000 Dividends declared (30,000) (30,000) Retained earnings, Dec 31, 2019 $272,000 $195.000 Other information: The notes payable are intercompany and are non-interest bearing. REQUIRED: a) b) Calculate and allocate acquisition differential. (4 marks) Prepare an amortization schedule of acquisition differential to December 31, 2019 (7 marks) Show all calculations. c) d) Prepare a Consolidated Income Statement for the year ended December 31, 2019 (8 marks) Show your calculation for consolidated net income (3 marks) Calculate Consolidated Retained Earnings at January 1, 2019 (3 marks) Prepare a Consolidated Statement of Retained Earnings for year ended December 31, 2019(1 mark) e) f) Prepare a Consolidated Balance Sheet at December 31, 2019. (8 marks). On January 1, 2016 Pierre Corp. purchased 75% of the outstanding shares of Schreiber Ltd. for $120,000 cash. On January 1, 2016 Schreiber had common shares of $80,000 and retained earnings of $25,000 and fair values were equal to book values for all the net assets except the following: Book Value Fair Market Value Inventory $ 80,000 $ 75,000 Equipment 105,000 115,000 Trademarks 32,000 Bonds Payable 100,000 89,587 The equipment had an estimated remaining life of five (5) years on January 1, 2016. The Trademark has a eight (8) year life. The bonds mature December 31, 2022. The 6% bonds pay interest annually December 31. The market rate of interest January 1, 2016 was 8%. Pierre uses the cost method to account for its investment. The testing for impairment as at December 31, 2019 yielded the following fair values (recoverable amount): Trademarks $10,000 Goodwill 15,000 The following are the financial statements of Pierre Corp. and its subsidiary Schreiber Ltd. as at December 31, 2019: BALANCE SHEETS As at December 31, 2019 Pierre Corp Schreiber Ltd. $ 45,000 85,000 Cash Accounts Receivable Note receivable Inventory Equipment (net) Land Investment in Schreiber (cost method) 65,000 180,000 135,000 120,000 $630,000 $ 15,000 55,000 55,000 65,000 140,000 60,000 $390,000 $ 55,000 98,000 Bank Loan Payable Accounts Payable Bond Payable Note Payable Common Shares Retained Earnings $ - 15,000 100,000 55,000 150,000 272,000 $630.000 80,000 195,000 $390.000 STATEMENTS OF INCOME AND RETAINED EARNINGS Year ended December 31, 2019 Pierre Corp. Schreiber Ltd. Sales $843,250 $375,000 Investment income 10,000 5,000 Dividend Income 22,500 $875,750 $380,000 Cost of Sales 500,000 225,000 Amortization expense-equipment 50,000 15,000 Interest expense 25,000 15,000 Miscellaneous expenses 95,000 25,000 Income Taxes 85,000 40,000 755,000 320,000 Net Income 120,750 60,000 Retained earnings, Beginning of year 181,250 165,000 Dividends declared (30,000) (30,000) Retained earnings, Dec 31, 2019 $272,000 $195.000 Other information: The notes payable are intercompany and are non-interest bearing. REQUIRED: a) b) Calculate and allocate acquisition differential. (4 marks) Prepare an amortization schedule of acquisition differential to December 31, 2019 (7 marks) Show all calculations. c) d) Prepare a Consolidated Income Statement for the year ended December 31, 2019 (8 marks) Show your calculation for consolidated net income (3 marks) Calculate Consolidated Retained Earnings at January 1, 2019 (3 marks) Prepare a Consolidated Statement of Retained Earnings for year ended December 31, 2019(1 mark) e) f) Prepare a Consolidated Balance Sheet at December 31, 2019. (8 marks)