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	$	20,000
Land		70,000
Plant and equipment		20,000			Estimated life 5 years
Patent		40,000			Estimated life 8 years
Goodwill		70,000
	$	220,000

The Year 9 income statements for the two companies were as follows:

	Road				Runner
Sales	$	3,800,000			$	2,020,000
Intercompany investment income		198,100
Rental revenue						40,000
Total income		3,998,100				2,060,000
Materials used in manufacturing		1,900,000				720,000
Changes in work-in-progress and finished goods inventory		20,000				(10,000	)
Employee benefits		470,000				400,000
Interest expense		170,000				60,000
Depreciation		325,000				275,000
Patent amortization						55,000
Rental expense		20,000
Income tax		220,000				283,000
Total expenses		3,125,000				1,783,000
Profit	$	873,100			$	277,000

Additional Information

• Runner regularly sells raw materials to Road. Intercompany sales in Year 9 totalled $340,000.
• Intercompany profits in the inventories of Road were as follows:

January 1, Year 9	$120,000
December 31, Year 9	90,000

• 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 $2,524,900 and $1,070,000, 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 $

Prev

Question 1 of 9 Total1 of 9

Visit question mapNext