On January 2, Year 4, Paypal Ltd. purchased 80% of the outstanding shares of Saypal Ltd. for $2,040,000. At that date, Saypal had common shares of $500,000 and retained earnings of $1,290,000 and accumulated depreciation of $640,000. Paypal acquired the Saypal shares to obtain control of mineral rights owned by Saypal. At the date of acquisition, these mineral rights were valued at $760,000, were not recognized on Saypals separate-entity balance sheet, and had an useful life of 10 years. Except for the mineral rights, the carrying amount of the recorded assets and liabilities of Saypal were equal to their fair values. On December 31, Year 7, the trial balances of the two companies were as follows:

Required: 1. Calculate acquisition differential and goodwill. 5 Marks 2. Prepare amortization schedule. 5 Marks 3. Prepare schedule for intercompany profit on sale of equipment. 5 Marks 4. Prepare schedule for profit on sale of intercompany inventory. 5 Marks 5. Prepare schedule for gain/loss retirement of intercompany bond. 10 Marks 6. Calculate deferred income tax. 5 Marks 7. Calculate consolidated net income for yr. 7 and show the allocation between Paypal and Saypal. 10 Marks 8. Prepare consolidated income statement. 15 Marks 9. Prepare consolidated statement of retained earnings. 10 Marks 10. Calculate NCI as of December 31 yr. 7. 10 Marks 11. Prepare Consolidated Statement of Financial Position. 20 Marks

Cash Accounts receivable Inventory Plant and equipment Investment in Saypal (cost) 2,040,000 Investment in bonds Cost of goods sold 2,428,000 Other expenses 971,000 304,000 Interest expense Income tax expense Accounts payable \begin{tabular}{rrrr} & 655,200 & & 390,000 \\ 600,000 & & 250,000 \\ \hline$ & 27,551,200 & $ & 7,930,800 \\ \hline$ & 2,528,000 & $ & 2,518,500 \end{tabular} Accumulated depreciation: plant and equipment 4,064,400 1,040,000 Bonds payable 500,000 Premium on bonds payable 12,000 Common shares 4,500,000 Retained earnings, January 1 Sales Dividend revenue 10,806,8004,940,000200,0001,806,8002,043,500 Interest revenue \begin{tabular}{rrr} & & 22,000 \\ \hline$27,551,200 & $ & 7,930,800 \\ \hline \end{tabular} Additional Information - The Year 7 net incomes of the two companies are as follows: - The mineral rights owned by Saypal have increased in value since the date of acquisition and were worth $928,600 at December 31 , Year 7. - On January 2, Year 5, Paypal sold equipment to Saypal for $540,000. The equipment had a carrying amount of $432,000 at the time of the sale. The remaining useful life of the equipment was 5 years. - The Year 7 opening inventories of Paypal contained $504,000 of merchandise purchased from Saypal during Year 6. Saypal had recorded a gross profit of $201,600 on this merchandise. - During Year 7, Saypal's sales to Paypal totalled $1,004,000. These sales were made at a gross profit rate of 35%. - Paypal's ending inventory contains $304,000 of merchandise purchased from Saypal. - The Year 7 opening inventories of Saypal contained $300,000 of merchandise purchased from Paypal during Year 6. Paypal had recorded a gross profit of $75,000 on this merchandise. - During Year 7, Paypal's sales to Saypal totalled $800,000. These sales were made at a gross profit rate of 25%. - Saypal's ending inventory contains $55,000 of gross profit recorded by Paypal. - On January 2, Year 5, Paypal issued 8\%, 7 year bonds with a face value of $500,000 for $521,000. Interest is paid annually on December 31. On January 2, Year 6, Saypal purchased one-half of this issue on the open market at a cost of $238,000. - Other expenses include depreciation expense. - Tax allocation will be at a rate of 40%. Required: 1. Calculate acquisition differential and goodwill. 5 Marks 2. Prepare amortization schedule. 5 Marks 3. Prepare schedule for intercompany profit on sale of equipment. 5 Marks 4. Prepare schedule for profit on sale of intercompany inventory. 5 Marks 5. Prepare schedule for gain/loss retirement of intercompany bond. 10 Marks 6. Calculate deferred income tax. 5 Marks 7. Calculate consolidated net income for yr. 7 and show the allocation between Paypal and Saypal. 10 Marks 8. Prepare consolidated income statement. 15 Marks 9. Prepare consolidated statement of retained earnings. 10 Marks 10. Calculate NCl as of December 31yr. 7. 10 Marks 11. Prepare Consolidated Statement of Financial Position. 20 Marks Cash Accounts receivable Inventory Plant and equipment Investment in Saypal (cost) 2,040,000 Investment in bonds Cost of goods sold 2,428,000 Other expenses 971,000 304,000 Interest expense Income tax expense Accounts payable \begin{tabular}{rrrr} & 655,200 & & 390,000 \\ 600,000 & & 250,000 \\ \hline$ & 27,551,200 & $ & 7,930,800 \\ \hline$ & 2,528,000 & $ & 2,518,500 \end{tabular} Accumulated depreciation: plant and equipment 4,064,400 1,040,000 Bonds payable 500,000 Premium on bonds payable 12,000 Common shares 4,500,000 Retained earnings, January 1 Sales Dividend revenue 10,806,8004,940,000200,0001,806,8002,043,500 Interest revenue \begin{tabular}{rrr} & & 22,000 \\ \hline$27,551,200 & $ & 7,930,800 \\ \hline \end{tabular} Additional Information - The Year 7 net incomes of the two companies are as follows: - The mineral rights owned by Saypal have increased in value since the date of acquisition and were worth $928,600 at December 31 , Year 7. - On January 2, Year 5, Paypal sold equipment to Saypal for $540,000. The equipment had a carrying amount of $432,000 at the time of the sale. The remaining useful life of the equipment was 5 years. - The Year 7 opening inventories of Paypal contained $504,000 of merchandise purchased from Saypal during Year 6. Saypal had recorded a gross profit of $201,600 on this merchandise. - During Year 7, Saypal's sales to Paypal totalled $1,004,000. These sales were made at a gross profit rate of 35%. - Paypal's ending inventory contains $304,000 of merchandise purchased from Saypal. - The Year 7 opening inventories of Saypal contained $300,000 of merchandise purchased from Paypal during Year 6. Paypal had recorded a gross profit of $75,000 on this merchandise. - During Year 7, Paypal's sales to Saypal totalled $800,000. These sales were made at a gross profit rate of 25%. - Saypal's ending inventory contains $55,000 of gross profit recorded by Paypal. - On January 2, Year 5, Paypal issued 8\%, 7 year bonds with a face value of $500,000 for $521,000. Interest is paid annually on December 31. On January 2, Year 6, Saypal purchased one-half of this issue on the open market at a cost of $238,000. - Other expenses include depreciation expense. - Tax allocation will be at a rate of 40%. Required: 1. Calculate acquisition differential and goodwill. 5 Marks 2. Prepare amortization schedule. 5 Marks 3. Prepare schedule for intercompany profit on sale of equipment. 5 Marks 4. Prepare schedule for profit on sale of intercompany inventory. 5 Marks 5. Prepare schedule for gain/loss retirement of intercompany bond. 10 Marks 6. Calculate deferred income tax. 5 Marks 7. Calculate consolidated net income for yr. 7 and show the allocation between Paypal and Saypal. 10 Marks 8. Prepare consolidated income statement. 15 Marks 9. Prepare consolidated statement of retained earnings. 10 Marks 10. Calculate NCl as of December 31yr. 7. 10 Marks 11. Prepare Consolidated Statement of Financial Position. 20 Marks