On January 1, Year 1, Par Ltd. purchased 75% of the outstanding common shares of Son Ltd. for $120,000 in cash. On the date of the purchase, Son had common shares of $38,000 and retained earnings of $22,000. Son has a new patent that is not recorded in its books but has a fair value of $18,000. The patent rights extend for another 3 years. The carrying values of Son's assets and liabilities were equal to their fair value except for the following: Inventory Equipment Bond payable Carrying value 45,000 65,000 35,000 Fair value 38,000 80,000 45,000 The equipment in Son's 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 $2,000 loss in Year 2 and $3,000 loss in Year 3. At December 31, Year 3, Son owed Par $25,000 in an interest-bearing note at 4% (note was issued in Year 2). During Year 3, Par paid $25,000 in dividends and Son paid $18,000 in dividends. The balance sheets and income statements for both companies for the year ended Year 3 are as follows: Balance Sheets Son Ltd. $ 30,000 35,000 Balance Sheets At December 31, Year 3 Par Ltd. Assets Cash $ 40,000 Accounts receivable 80,000 Notes receivable 75,000 Inventory 95.000 Land 60,000 Equipment 500,000 Accumulated depreciation 70,000 Investment in Son (cost basis) 120.000 $ 200.000 75,000 45.000 265.000 50,000 $ 400.000 $ 60,000 Liabilities & Shareholders' equity Accounts payable Notes payable Bonds payable Common shares Retained earnings 190.000 475.000 175.000 $ 900.000 $ 40.000 35.000 200.000 38.000 87.000 S 400.000 Income Statements For the year ended December 31, Year 3 Son Ltd. $365,000 Sales Other income Cost of goods sold Depreciation/amortization expense Administration expense Other expenses Income tax expense Net income Par Ltd. $750,000 20,000 475,000 95,000 50,000 55,000 19.000 76.000 185,000 36,000 25,000 75.000 9.000 $ 35.000 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 Par, December 31, Year 3, using the direct method (in good format and write out all words completely) Hints: Goodwill = $84,000. AD left Assets = $1,244,500. ember 31, Year 3 = $87,000. Total Consolidated . Other notes: Only 4 columns for AD amort./loss schedule (in proper sequence) Good format so include proper title with proper dates All calculations must be shown (i.e. for NCI, Cons. RE, etc.) All #s must be given in brackets on consolidated statements along with totals for any marks . . On January 1, Year 1, Par Ltd. purchased 75% of the outstanding common shares of Son Ltd. for $120,000 in cash. On the date of the purchase, Son had common shares of $38,000 and retained earnings of $22,000. Son has a new patent that is not recorded in its books but has a fair value of $18,000. The patent rights extend for another 3 years. The carrying values of Son's assets and liabilities were equal to their fair value except for the following: Inventory Equipment Bond payable Carrying value 45,000 65,000 35,000 Fair value 38,000 80,000 45,000 The equipment in Son's 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 $2,000 loss in Year 2 and $3,000 loss in Year 3. At December 31, Year 3, Son owed Par $25,000 in an interest-bearing note at 4% (note was issued in Year 2). During Year 3, Par paid $25,000 in dividends and Son paid $18,000 in dividends. The balance sheets and income statements for both companies for the year ended Year 3 are as follows: Balance Sheets Son Ltd. $ 30,000 35,000 Balance Sheets At December 31, Year 3 Par Ltd. Assets Cash $ 40,000 Accounts receivable 80,000 Notes receivable 75,000 Inventory 95.000 Land 60,000 Equipment 500,000 Accumulated depreciation 70,000 Investment in Son (cost basis) 120.000 $ 200.000 75,000 45.000 265.000 50,000 $ 400.000 $ 60,000 Liabilities & Shareholders' equity Accounts payable Notes payable Bonds payable Common shares Retained earnings 190.000 475.000 175.000 $ 900.000 $ 40.000 35.000 200.000 38.000 87.000 S 400.000 Income Statements For the year ended December 31, Year 3 Son Ltd. $365,000 Sales Other income Cost of goods sold Depreciation/amortization expense Administration expense Other expenses Income tax expense Net income Par Ltd. $750,000 20,000 475,000 95,000 50,000 55,000 19.000 76.000 185,000 36,000 25,000 75.000 9.000 $ 35.000 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 Par, December 31, Year 3, using the direct method (in good format and write out all words completely) Hints: Goodwill = $84,000. AD left Assets = $1,244,500. ember 31, Year 3 = $87,000. Total Consolidated . Other notes: Only 4 columns for AD amort./loss schedule (in proper sequence) Good format so include proper title with proper dates All calculations must be shown (i.e. for NCI, Cons. RE, etc.) All #s must be given in brackets on consolidated statements along with totals for any marks
