On January $1,$ Year $7,$ the Vine Company purchased $60,000$ of the $80,000$ ordinary shares of the Devine Company for $$80$ per share. On that date, Devine had ordinary shares of $$3,440,000,$ and retained earnings of $$2,200,000.$ When acquired, Devine had inventories with fair values $$60,000$ less than carrying amount, a parcel of land with a fair value $$300,000$ greater than the carrying amount, and equipment with a fair value $$240,000$ less than carrying amount. There were also internally generated patents with an estimated market value of $$500,000$ and a five$-$year remaining life. A long$-$term liability had a market value $$200,000$ greater than carrying amount; this liability was paid off December $31,$ Year $10.$ All other identifiable assets and liabilities of Devine had fair values equal to their carrying amounts. Devine$$s accumulated depreciation on the plant and equipment was $$600,000$ at the date of acquisition.

The year $11$ financial statements for Vine and Devine were as follows:

INCOME STATEMENTS

For year ending December $31,$ Year $11$

$($in thousands of dollars$)$

Vine Devine

Sales $ $13,600$ $ $5,000$

Dividends, investment income and gains $2,4003,000$

Total income $16,0008,000$

Cost of goods sold $11,0003,500$

Other expenses $500500$

Income taxes $200200$

Total expenses $(11,700)(4,200)$

Profit $ $4,300$ $ $3,800$

STATEMENTS OF FINANCIAL POSITION

December $31,$ Year $11$

$($in thousands of dollars$)$

Vine Devine

Land $ $6,000$ $ $2,500$

Plant and equipment $18,60011,600$

Accumulated depreciation $(6,000)(5,200)$

Investment in Devine, cost $5,100$

Inventories $4,4002,200$

Cash and current receivables $760100$

Total assets $ $28,860$ $ $11,200$

Ordinary shares $ $10,000$ $ $3,440$

Retained earnings $10,0005,800$

Long$-$term liabilities $4,6001,700$

Deferred income taxes $2,200100$

Current liabilities $2,060160$

Total equity and liabilities $ $28,860$ $ $11,200$

Additional Information

At the acquisition date, the equipment had an expected remaining useful life of ten years. Both companies use the straight$-$line method for all depreciation and amortization calculations and the FIFO inventory cost flow assumption. Assume a $40\%$ income tax rate on all applicable items and that there were no impairment losses for goodwill.

On September $1,$ Year $11,$ Devine sold a parcel of land to Vine and recorded a total non$-$operating gain of $$500,000.$

Sales of finished goods from Vine to Devine totalled $$1,100,000$ in Year $10$ and $$2,100,000$ in Year $11.$ These sales were priced to provide a gross profit margin on selling price of $33(1)/(2)\%$ to the Vine Company. Devine$$s December $31,$ Year $10,$ inventory contained $$330,000$ of these sales; December $31,$ Year $11,$ inventory contained $$630,000$ of these sales.

Sales of finished goods from Devine to Vine were $$900,000$ in Year $10$ and $$1,300,000$ in Year $11.$ These sales were priced to provide a gross profit margin on selling price of $40\%$ to the Devine Company. Vine$$s December $31,$ Year $10,$ inventory contained $$200,000$ of these sales; the December $31,$ Year $11,$ inventory contained $$600,000$ of these sales.

Vine$$s investment in Devine$$s account is carried in accordance with the cost method and includes advances to Devine of $$300,000,$ which are also included in current liabilities.

There are no intercompany amounts other than those noted, except for the dividends of $$500,000($total amount$)$ declared and paid by Devine.

Required:

$($a$)$ The allocation of the acquisition cost at acquisition and the related changes to acquisition differential schedule. $($Leave no cells blank $-$ be certain to enter $"0"$ wherever required. Enter your answers in dollars, not in thousands of dollars. Input all values as positive numbers. Do not round gross profit percentage for intermediate computations. Omit $ sign in your response.$)$

Acquisition cost Allocation

Acquisition January $1,$ Year $7$

Cost $

Implied value of $100\%$ investment

Current Assets:Ordinary Shares $

Retained Earnings

Acquisition differential $

Allocation: Life

Inventory

Cr $1$

Land

Dr

Equipment

Cr $10$

Patents

Dr $5$

Long $-$ term Liability

Cr $4$

Subtotal

Dr

Balance: Goodwill

Dr

Dr

Changes to Acquisition Differential Table:

Allocation Life Changes Balance

YR $7-$ YR $10$ YR $11$ Dec. $3,$ YR $11$

Inventory

Cr $1$

Dr

Land

Dr

Dr

Equipment

Cr $10$

Dr

Dr

Cr

Patents

Dr $5$

Cr

Cr

Long $-$ term liability

Cr $4$

Dr

Goodwill

Dr

Dr

Dr

Cr

Cr