Pa acquired 80% of Son's common stock on January 1, Year 1 for $170,00. At that data, Son's reported a retained earnings balance of $20,000 and common shares $125,000. On that, dated Son's not assets were equal for market value with the exception of the following. Annual implement tests of goodwill resulting in losses of $8,000 in Year 3 and $2, 500 in Year 6. Pa uses the cost method. Assume a 40% corporate tax rate. Son's sales during Year 6 included in Pa's inventories were $50,000 at the end of Year 5 and $30,000 at the end of Year 6. Son's gross profit margin to Pa in 30%. During Year 6, Pa sold inventory that it had purchased for $80,000 to Son for $100,000, 35% of this inventory was resold by Son by December 31, Year 6. On April 1, Year 6, Pa sold machinery to Son for $40,000. The carrying value of the machinery at the data of sale was $48,000. The remaining useful life of the machinery on that date was 4 years. On January 1, Year 4, Son sold a building to Pa for $60,000 Son and purchased the building on January 1, Year 1 for $60,000 and it had an estimated 8 year life on that date with no salvage value. On May 1, Year 6, Son borrowed $10,000 from Pa. The one-year note had interest rate of 6%. Both the principal and interest was payable at maturity. Required a) Prepare the calculation and allocation of AD schedule and the AD amortization and goodwill impairment schedule (b) Prepare the intercompany profits, gains and losses schedule. (c) Calculate the consolidated net income for Year 0 (d) Calculate the consolidated retained earnings at Jan 1, Year 6 a. Consolidated income statement b. Consolidated retained earnings statement c. Consolidated balance sheet Prepare the working paper eliminating journal entries for the inter-company sale of the machinery in Year 6. Pa acquired 80% of Son's common stock on January 1, Year 1 for $170,00. At that data, Son's reported a retained earnings balance of $20,000 and common shares $125,000. On that, dated Son's not assets were equal for market value with the exception of the following. Annual implement tests of goodwill resulting in losses of $8,000 in Year 3 and $2, 500 in Year 6. Pa uses the cost method. Assume a 40% corporate tax rate. Son's sales during Year 6 included in Pa's inventories were $50,000 at the end of Year 5 and $30,000 at the end of Year 6. Son's gross profit margin to Pa in 30%. During Year 6, Pa sold inventory that it had purchased for $80,000 to Son for $100,000, 35% of this inventory was resold by Son by December 31, Year 6. On April 1, Year 6, Pa sold machinery to Son for $40,000. The carrying value of the machinery at the data of sale was $48,000. The remaining useful life of the machinery on that date was 4 years. On January 1, Year 4, Son sold a building to Pa for $60,000 Son and purchased the building on January 1, Year 1 for $60,000 and it had an estimated 8 year life on that date with no salvage value. On May 1, Year 6, Son borrowed $10,000 from Pa. The one-year note had interest rate of 6%. Both the principal and interest was payable at maturity. Required a) Prepare the calculation and allocation of AD schedule and the AD amortization and goodwill impairment schedule (b) Prepare the intercompany profits, gains and losses schedule. (c) Calculate the consolidated net income for Year 0 (d) Calculate the consolidated retained earnings at Jan 1, Year 6 a. Consolidated income statement b. Consolidated retained earnings statement c. Consolidated balance sheet Prepare the working paper eliminating journal entries for the inter-company sale of the machinery in Year 6
