Question
On January 2, Year 5, Road Ltd. acquired 70% of the outstanding voting shares of Runner Ltd. The acquisition differential of $220,000 on that date
On January 2, Year 5, Road Ltd. acquired 70% of the outstanding voting shares of Runner Ltd. The acquisition differential of $220,000 on that date was allocated in the following manner:
Inventory | $ | 80,000 | |||
Land | 30,000 | ||||
Plant and equipment | 40,000 | Estimated life 5 years | |||
Patent | 40,000 | Estimated life 8 years | |||
Goodwill | 30,000 | ||||
$ | 220,000 | ||||
The Year 9 income statements for the two companies were as follows:
Road | Runner | |||||||
Sales | $ | 4,000,000 | $ | 2,080,000 | ||||
Intercompany investment income | 202,300 | |||||||
Rental revenue | 50,000 | |||||||
Total income | 4,202,300 | 2,130,000 | ||||||
Materials used in manufacturing | 2,000,000 | 780,000 | ||||||
Changes in work-in-progress and finished goods inventory | 25,000 | (40,000 | ) | |||||
Employee benefits | 530,000 | 460,000 | ||||||
Interest expense | 230,000 | 120,000 | ||||||
Depreciation | 385,000 | 245,000 | ||||||
Patent amortization | 25,000 | |||||||
Rental expense | 25,000 | |||||||
Income tax | 280,000 | 232,000 | ||||||
Total expenses | 3,475,000 | 1,822,000 | ||||||
Profit | $ | 727,300 | $ | 308,000 | ||||
Additional Information
- Runner regularly sells raw materials to Road. Intercompany sales in Year 9 totalled $400,000.
- Intercompany profits in the inventories of Road were as follows:
January 1, Year 9 | $125,000 |
December 31, Year 9 | 130,000 |
- Roads entire rental expense relates to equipment rented from Runner.
- A goodwill impairment loss of $3,000 occurred in Year 9.
- Retained earnings at December 31, Year 9, for Road and Runner were $2,525,500 and $1,130,000, respectively.
- Road uses the equity method to account for its investment, and uses income tax allocation at the rate of 40% when it prepares consolidated statements.
Required:
(a) Prepare a consolidated income statement for Year 9 with expenses classified by nature. (Input all amounts as positive number except for Change in work-in-progress and finished goods inventory that must be entered with appropriate sign. Omit $ sign in your response.)
Road Ltd. | ||
Consolidated Income Statement | ||
for the Year Ended December 31, Year 9 | ||
Sales | $ | |
Rental revenue | ||
Total income | ||
Materials used in manufacturing | ||
Change in work-in-progress and finished goods inventory | ||
Employee benefits | ||
Interest expense | ||
Depreciation | ||
Patent amortization | ||
Goodwill impairment loss | ||
Income tax | ||
Total expenses | ||
Profit | $ | |
Attributable to: | ||
Shareholders of Road | ||
Non-controlling interests | ||
$ | ||
(b) Calculate consolidated retained earnings at December 31, Year 9. (Omit $ sign in your response.)
Consolidated retained earnings $
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