(P5.1 Revised) 1. On 1 January 20x2, Fire Co (P) purchased 70% of Wall Co (S)'s ordinary shares. 2. At the date of acquisition, share capital of S was $160,000 and retained earnings were $40,000. 3. The excess of the fair value of S over the underlying book value as at acquisition date was assigned to: Buildings that had a fair value of $40,000 greater than book value and remaining useful life of 10 years from 1 January 20x2; and Goodwill. Goodwill impairment amounting to 20% of its original cost was recognized in 20x2. 4. Fair value of S as at acquisition date was $280,000. Non-controlling interests as at 1 January 20x2 had a proportionate share in the fair value of S at that date. 5. During 20x2, the following transactions arose: S purchased inventory for $64,000 and sold it to P for $96,000. P resold $54,000 of the inventory during 20x3, while the balance of $42,000 remained unsold as at 31 December 20x3. P sold the building that it originally purchased for $40,000 to S for $64,000. Accumulated depreciation at the date of sale was $8,000. Estimated useful life at date of original purchase was 10 years and at the date of resale was 8 years. S had recognized a full year's depreciation on the building in 20x2. 6. During 20x3, P sold inventory purchased for $120,000 to S for $180,000. S resold 40% of the inventory during 20x3. 7. The financial statements of P and S for the year ended 31 December 20x3 are shown in the Consolidation Worksheet on Page 2. 8. Assume tax rate was 20%. Required (Ignore all tax effects): 1. Prepare the consolidation adjusting entries for the year ended 31 December 20x3. 2. Complete the consolidation worksheet for the year ended 31 December 20x3. Income Statement and Statement of Changes in Equity (Partial) for the year ended 31 Dec 20x3 Dr Cr P (Fire) Sales Cost of goods sold Gross profit Other income $520,000 S (Wall) $250,000 (372,000) (159,600) 148,000 90,400 79,250 50,000 Dividend income 21,000 Depreciation (40,000) (30,000) Interest expense (32,000) (10,400) Other expenses (12,000) (40,000) Profit before tax 164,250 60,000 Tax @20% (32,850) (12,000) Net profit after tax 131,400 48,000 Retained earnings, 1 Jan 241,600 100,000 Dividends declared Retained earnings, 31 Dec (60,000) $313,000 (30,000) $118,000 Statement of Financial Position as at 31 Dec 20x3 Consol. P (Fire) S (Wall) Dr Cr Consol. Cash $19,800 $3,200 Accounts receivable 32,000 38,000 Inventory 330,000 170,000 Land 160,000 80,000 Buildings and equipment 680,000 520,000 Less accumulated depreciation (280,000) (160,000) Investment in Wall, at cost 196,000 Total assets $1.137.800 $651.200 Share capital $240,000 $160,000 Retained earnings 313,000 118,000 Bonds payable Bond premium 400,000 300,000 3,200 Accounts payable 184,800 70.000 Total equity and liabilities $1.137.800 $651,200 614.600 614.600