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On January 1 , Year 4 , A Company purchased 7 0 % of the outstanding common shares of B Limited for $ 1 3
On January Year A Company purchased of the outstanding common shares of B Limited for $ On that date, Bs shareholders equity consisted of common shares of $ and retained earnings of $ In negotiating the purchase price at the date of acquisition, it was agreed that the fair values of all of Bs assets and liabilities were equal to their carrying amounts, except for the following: Carrying Amount Fair Value Inventory $ $ Equipment The financial statements for A and B for Year were as follows: BALANCE SHEETS At December Year A B Cash $ $ Accounts receivable Inventory Property, plant, and equipmentnet Investment in B Total $ $ Current liabilities $ $ Longterm liabilities Common shares Retained earnings Total $ $ STATEMENTS OF INCOME AND RETAINED EARNINGS For year ended December Year A B Sales $ $ Cost of sales Gross profit Other revenue Selling and administrative expenses Other expenses Income before income taxes Income tax expense Net income Retained earnings, beginning of year Dividends paid Retained earnings, end of year $ $ Other Information: Both companies use FIFO to account for their inventory and the straightline method for amortizing their property, plant, and equipment. Bs equipment had a remaining useful life of years at the acquisition date. Goodwill is not amortized on a systematic basis. However, each year, goodwill is evaluated to determine if there has been a permanent impairment. It was determined that goodwill on the consolidated balance sheet should be reported at its recoverable amount of $ on December Year and $ on December Year During Year inventory sales from B to A were $ As inventories contained merchandise purchased from B for $ at December Year and $ at December Year B earns a gross margin of on its intercompany sales. On January Year A sold some equipment to B for $ and recorded a gain of $ before taxes. This equipment had a remaining useful life of eight years at the time of the purchase by B A charges $ per month to B for consulting services and has been doing so throughout Years and A uses the cost method of accounting for its longterm investment. Both companies pay taxes at the rate of Amortization expense is grouped with selling and administrative expenses, and impairment losses are grouped with other expenses. Required: a Prepare the schedule showing the calculation and allocation of the acquisition differential at the date of As purchase of Bs shares on January year b Prepare a schedule showing the annual amortizations in years to of the fair value adjustments that occurred at the purchase date and the adjustments each year to goodwill for the annually determined permanent impairments of goodwill. c Prepare a calculation of consolidated net income for year d Prepare the consolidating journal entries required for year e Prepare the Consolidated Income Statement for Year f Prepare the Consolidated Balance Sheet as at December Year
On January Year A Company purchased of the outstanding common shares of B Limited for $ On that date, Bs shareholders equity consisted of common shares of $ and retained earnings of $
In negotiating the purchase price at the date of acquisition, it was agreed that the fair values of all of Bs assets and liabilities were equal to their carrying amounts, except for the following:
Carrying Amount Fair Value
Inventory $ $
Equipment
The financial statements for A and B for Year were as follows:
BALANCE SHEETS
At December Year
A B
Cash $ $
Accounts receivable
Inventory
Property, plant, and equipmentnet
Investment in B
Total $ $
Current liabilities $ $
Longterm liabilities
Common shares
Retained earnings
Total $ $
STATEMENTS OF INCOME AND RETAINED EARNINGS
For year ended December Year
A B
Sales $ $
Cost of sales
Gross profit
Other revenue
Selling and administrative expenses
Other expenses
Income before income taxes
Income tax expense
Net income
Retained earnings, beginning of year
Dividends paid
Retained earnings, end of year $ $
Other Information:
Both companies use FIFO to account for their inventory and the straightline method for amortizing their property, plant, and equipment. Bs equipment had a remaining useful life of years at the acquisition date.
Goodwill is not amortized on a systematic basis. However, each year, goodwill is evaluated to determine if there has been a permanent impairment. It was determined that goodwill on the consolidated balance sheet should be reported at its recoverable amount of $ on December Year and $ on December Year
During Year inventory sales from B to A were $ As inventories contained merchandise purchased from B for $ at December Year and $ at December Year B earns a gross margin of on its intercompany sales.
On January Year A sold some equipment to B for $ and recorded a gain of $ before taxes. This equipment had a remaining useful life of eight years at the time of the purchase by B
A charges $ per month to B for consulting services and has been doing so throughout Years and
A uses the cost method of accounting for its longterm investment.
Both companies pay taxes at the rate of
Amortization expense is grouped with selling and administrative expenses, and impairment losses are grouped with other expenses.
Required:
a Prepare the schedule showing the calculation and allocation of the acquisition differential at the date of As purchase of Bs shares on January year
b Prepare a schedule showing the annual amortizations in years to of the fair value adjustments that occurred at the purchase date and the adjustments each year to goodwill for the annually determined permanent impairments of goodwill.
c Prepare a calculation of consolidated net income for year
d Prepare the consolidating journal entries required for year
e Prepare the Consolidated Income Statement for Year
f Prepare the Consolidated Balance Sheet as at December Year
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