On January 1, Year 3, Par Company acquired 8,000 of Sub Company's common shares. On January 1, Year 3, the shareholders' equity accounts of Sub were: Common shares (10,000 shares issued) Preferred shares (6,000 shares issued) Retained earnings $ 200,000 60,000 90,000 $ 350,000 The preferred shares are cumulative with a redemption value of 1.04. The dividend rate is $1 per share. Dividends were last declared and paid on December 31, Year 2. Following are the statements of retained earnings for the two companies for Year 5: Par Sub Retained earnings, beginning of year $ 300,000 $ 120,000 Net income 100,000 60,000 Dividends (60.000) (40,000) Retained earnings, end of year $ 340,000 $ 140,000 Additional information 1. Par uses the cost method to account for its investment in Sub. 2. The total acquisition differential on January 1, Year 3 was $14,000 of which $8,000 related to inventory and $6,000 to goodwill. There was a goodwill impairment loss in Year 3 of $500 and goodwill impairment loss in Year 5 of $1,000. 3. On April 1". Year 4. Par purchased a building from Sub for $15,000. The carrying value was $20,000 on the date of sale. Estimated remaining life of the building was 10 years at the time of the purchase from Sub. 4. On October 19, Year 3, PAR purchased a parcel of land from SUB for $5,000. The land originally cost SUB $3,000. In Year 5, PAR sold 60% of this land for $6,000. 5. Both companies pay tax at the rate of 40%. Required: show ALL calculations for full marks a. Prepare the intercompany profit, gain and loss schedule (2 marks) b. Calculate Consolidated Net Income for Year 5. Show the attributable amounts separately to Par, Noncontrolling Interest common and Noncontrolling Interest preferred. (7 marks) On January 1, Year 3, Par Company acquired 8,000 of Sub Company's common shares. On January 1, Year 3, the shareholders' equity accounts of Sub were: Common shares (10,000 shares issued) Preferred shares (6,000 shares issued) Retained earnings $ 200,000 60,000 90,000 $ 350,000 The preferred shares are cumulative with a redemption value of 1.04. The dividend rate is $1 per share. Dividends were last declared and paid on December 31, Year 2. Following are the statements of retained earnings for the two companies for Year 5: Par Sub Retained earnings, beginning of year $ 300,000 $ 120,000 Net income 100,000 60,000 Dividends (60.000) (40,000) Retained earnings, end of year $ 340,000 $ 140,000 Additional information 1. Par uses the cost method to account for its investment in Sub. 2. The total acquisition differential on January 1, Year 3 was $14,000 of which $8,000 related to inventory and $6,000 to goodwill. There was a goodwill impairment loss in Year 3 of $500 and goodwill impairment loss in Year 5 of $1,000. 3. On April 1". Year 4. Par purchased a building from Sub for $15,000. The carrying value was $20,000 on the date of sale. Estimated remaining life of the building was 10 years at the time of the purchase from Sub. 4. On October 19, Year 3, PAR purchased a parcel of land from SUB for $5,000. The land originally cost SUB $3,000. In Year 5, PAR sold 60% of this land for $6,000. 5. Both companies pay tax at the rate of 40%. Required: show ALL calculations for full marks a. Prepare the intercompany profit, gain and loss schedule (2 marks) b. Calculate Consolidated Net Income for Year 5. Show the attributable amounts separately to Par, Noncontrolling Interest common and Noncontrolling Interest preferred. (7 marks)
