On January 1, Year 1, Meyers Ltd. purchased 80% of the outstanding common

shares of Norris Company for $90,000 in cash. On the date of the purchase,

Norris had common shares of $38,000 and retained earnings of $26,000.

Norris has a new patent that is not recorded in its books but has a fair value of

$10,000. The patent rights extend for another 2 years. The carrying amounts of

Norris' assets and liabilities were equal to their fair value except for the following

items:

Carrying value Fair value

Inventory $45,000 $38,000

Equipment 60,000 75,000

Bond payable 30,000 42,000

The equipment in Norris' books has an expected remaining useful life of 10 years

and the bond payable matures December 31 Year 4. Due to economic changes

the annual goodwill impairment tests resulted in a $1,000 loss in Year 2 and

$2,000 loss in Year 3.

At December 31, Year 3, Norris owed Meyers $20,000 in an interest bearing note

at 5% (note was issued in Year 2). During Year 3, Meyers paid $20,000 in

dividends and Norris paid $10,000 in dividends.

The balance sheets and income statements for both companies for the year

ended Year 3 are as follows:

Balance Sheets

At December 31, Year 3

Meyers Ltd. Norris Company

Assets

Cash $ 50,000 $ 35,000

Accounts receivable 100,000 40,000

Notes receivable 80,000

Inventory 90,000 80,000

Land 60,000 50,000

Equipment 600,000 298,000

Accumulated depreciation 100,000 50,000

Investment in Norris (cost basis) 90,000 ---

$ 970,000 $ 453,000

Liabilities & Shareholders' equity

Accounts payable $ 70,000 $ 50,000

Notes payable 30,000

Bonds payable 200,000 270,000

Common shares 500,000 38,000

Retained earnings 200,000 65,000

$ 970,000 $ 453,000

Income Statements

For the year ended December 31, Year 3

Norris

Meyers Ltd. Company

Sales $ 798,000 $ 500,000

Other income 10,000

Cost of goods sold 500,000 270,000

Depreciation/amortization expense 98,000 50,000

Administration expense 48,000 30,000

Other expenses 60,000 90,000

Income tax expense 26,000 20,000

Net income $ 76,000 $ 40,000

Required:

a. Prepare the Calculation and allocation of the acquisition differential and the

AD amortization/impairment schedules.

b. Calculate the consolidated net income for Year 3.

c. Calculate the consolidated retained earnings at January 1, Year 3.

d. Prepare the three (3) consolidated financial statements for Meyers, December

31, Year 3, using the direct method (in good format and write out all words

completely).

Hints: AD remaining (balance at) December 31, Year 3 = $47,000. Total

Consolidated Assets = $1,363,000.

Note: You have been given 2 separate lines for: Equipment less accumulated

depreciation on Consolidated Balance Sheet. You cannot net these two

numbers Show each as a separate line.

Notes:

Your AD Changes/Amortization/Loss Schedule should

have only 4 columns (in proper sequence)

Statements should be prepared in good format (include

proper titling with proper dates (3 lines and all words

fully written out)

Non-controlling interest should be shown at the end of

the equity section

All calculations must be shown (i.e. for NCI, Cons. RE,

etc)

All #s must be given in brackets on Cons. Statements

along with totals