On January 1, Year 1, Major Inc. purchased 60% of the outstanding common shares of Minor Ltd. for $105,000.On that date, Minor Ltd.s shareholders equity consisted of common shares $15,000 and retained earnings of $42,000.The financial statements for Major Inc. and Minor Ltd. for Year 5 were as follows:

Statement of Financial Position As of December 31, Year 5
	Major Inc.		Minor Ltd.
Cash	$39,400		$7,600
Inventory	172,500		33,800
Property, plant, and equipment (net)	383,600		83,600
Land	150,000		125,000
Investment in Sub Inc.	105,000		-
Total assets	$850,500		$250,000
Current liabilities	$77,500		$45,400
Long-term debt	150,000		100,000
Common shares	200,000		15,000
Retained earnings	423,000		89,600
Total liabilities and equities	$850,500		$250,000

Statement of Income and Retained Earnings For the year ended December 31, Year 5
	Major Inc.		Minor Ltd.
Sales	$400,600		$102,500
Cost of goods sold	198,500		60,500
Gross profit	202,100		42,000
Selling and administrative expense	58,100		21,200
Other revenue	40,000		32,000
Other expenses	20,300		8,500
Income before income taxes	163,700		44,300
Income tax expense	40,800		11,300
Net Income	122,900		33,000
Retained earnings, beginning of year	350,100		76,600
Dividends declared and paid	50,000		20,000
Retained earnings, end of year	$423,000		$89,600

Additional Information

1) At the date of acquisition, it was agreed that the fair values of all Minor Ltd.s assets and liabilities were equal to their carrying amounts, except for the following:

	Carrying amount		Fair Market Value
Inventory	$15,300		$23,600
Equipment	65,000		98,000

2) Both companies use FIFO to account for their inventory and the straight-line method for amortizing their property, plant, and equipment.Minor Ltd.s equipment had a remaining useful life of 20 years at the acquisition date.

3) Each year, goodwill is evaluated to determine if there has been a permanent impairment.It was determined that the following amounts were impaired since the recoverable amount is less than the carrying amounts:

• Year 1 - $10,500; and
• Year 5 - $5,200.

4) During Year 5, inventory sales from Minor Ltd. to Major Inc. were $33,000.Major Inc.s inventories contained merchandise purchased from Minor Ltd. for $10,000 at December 31, Year 4, and $8,000 at December 31, Year 5.Minor Ltd. earns a gross margin of 35% on its intercompany sales.

5) During Year 5, inventory sales from Major Inc. to Minor Ltd. were $41,000.Minor Ltds inventories contained merchandise purchased from Major Inc. valued at $12,000 at December 31, Year 4, and $15,000 at December 31, Year 5.Major Inc. earns a gross margin of 25% on its intercompany sales.

5) In Year 5, Minor Ltd. charged Major Inc. $11,000 for consulting services that has been performed by Minor Ltd.Major Inc. recorded this charges in its Other Expenses account, and Minor Ltd. recorded the fees in its Other Revenue account.

6)In Year 5, Major Inc. sold land that originally cost $100,000 to Major Inc. for $125,000. The land is still owned by Minor Ltd.

7) Major Inc. uses the cost method of accounting for its long-term investment.

8) Both companies pay taxes at the rate of 20%.

9) Depreciation and amortization expenses are grouped with selling and administrative expenses.

Required:

a) Calculate and show the supporting calculation of the goodwill that was inherited in the purchase price of Minor Ltd.(5 marks)

b) Calculate and show the schedule of the amortization of acquisition differential (including goodwill impairment) and intercompany transactions that will be adjusted in year 2015.(10 marks)

c) Calculate and show the supporting calculation of the consolidated net income for the year ended December 31, Year 5 and prepare a consolidated statement of income for the year ended December 31, Year 5. (19.5 marks)

d) Calculate only the balance of the consolidated retained earnings and NCI as of December 31, Year 5.(8 marks)

e) Prepare a consolidated statement of financial position as at December 31, Year 5.Show supporting calculations. (12.5 marks)