On January 1, 20X5, Pan Corp. purchased 85% of the outstanding voting common shares of Spoon Inc. for $850,000 cash. On this date, Spoon reported common shares of $400,000 and retained earnings of $500,000. Spoon's identifiable assets and liabilities had fair values equal to their carrying values. Additional information: The investment in the subsidiary was found to be impaired by $10,000 in 20X7. The entire impairment loss was allocated to goodwill. On January 1, 20X6, Spoon sold a trademark to Pan for $80,000. On this date, the trademark had a carrying value of $70,000 on the books of Spoon and a remaining useful life of five years. On September 1, 20X8, Pan sold land to Spoon at a $30,000 loss. Spoon still owns this land as of December 31, 20X8. The land asset was not impaired at time of sale. . During 20x8, Pan's inventory sales to Spoon were $70,000. Spoon still had $20,000 of this inventory on hand at December 31, 20X8. Inventory purchased from Pan and still on hand at December 31, 20X7, was $7,000. Pan prices intercompany sales to yield a 25% gross margin. . During 20x8, Spoon's inventory sales to Pan were $40,000. Pan still had $8,000 of this inventory on hand at December 31, 20X8. Inventory purchased from Spoon and still on hand at December 31, 20X7, was $4,000. Spoon's gross margin on sales is 30% for all intercompany transactions. Pan paid dividends of $15,000 and Spoon paid dividends of $20,000 in 20X8. Pan uses the cost method to record its investment in Spoon. Pan applies the fair value entity method (FVE) for goodwill calculations. Spoon has not had any changes to its common share account since acquisition. The following are the statements of comprehensive income for the year ended December 31, 20X8, for Pan and Spoon: Statements of comprehensive income For the year ended December 31, 20X8 Pan Spoon Sales and other income $840,000 $710,000 Cost of goods sold 630,000 497,000 Amortization expense 68,000 54.000 142,000 159,000 Income tax expense (40%) 56.800 63.600 Net income and comprehensive income $ 85,200 $ 95,400 Selected statement of financial position accounts at December 31, 20x8, are as follows: Pan Spoon Inventory $ 95,000 $ 58,000 Property, plant, and equipment (net) (includes land) 416,000 397,000 Trademark (net) 32,000 Retained earnings 984,000 748,000 1. What is the consolidated net income for the year ended December 31, 20X8? a) $144,130 b) $170,130 c) $178,930 d) $180,130 2. What amount would be reported on the consolidated statement of financial position for trademarks at December 31, 20X8? a) $22,000 b) $28,000 c) $36,000 d) $38,000 3. What amount would be reported on the consolidated statement of financial position for inventory? a) $145,600 b) $148,550 c) $148,560 d) $160,400
