PATRIOTS CORPORATION AND SEAHAWKS COMPANY

Income Statements and Retained Earnings year ended December 31, 2018

Sales	PATRIOTS $3,500,000	SEAHAWKS $1,750,000
Dividend Revenue	45,000	--
Other Revenues	90,000	50,000
Total Revenues	$3,635,000	$1,800,000
Cost of Goods Sold	2,400,000	1,300,000
Gross Profit	1,235,000	500,000
Selling and administrative expenses	204,000	84,000
Bond Interest expense	46,000	56,000
Amortization	300,000	160,000
Income Before Tax	685,000	200,000
Income taxes (30%)	205,500	60,000
Net income	479,500	140,000
Retained earnings Jan 1, 2018	4,195,500	1,710,000
Dividends	75,000	50,000
Retained earnings Dec 31, 2018	$4,600,000	$1,800,000

Additional Information

1. Property, plant and equipment (PPE) items held by Seahawks as of January 1, 2015 are being amortized over their useful life of 10 years. Inventory held by Seahawks as of January 1, 2015 was sold by September 1, 2015. The trademark had an estimated useful life of 20 years at January 1, 2015.

2. During 2017 and 2018, the fair value of goodwill declined by $10,000 and $20,000, respectively. The fair value of goodwill was not impaired prior to 2017.

3. In 2017, Seahawks sold Patriots inventory for $90,000. Seahawks sold the inventory at a 25% gross profit. Similarly, in 2018 Seahawks sold Patriots inventory for $75,000, at a 25% gross profit. As of December 31, 2017 and 2018, one-half of the inventory remained in Patriots inventory.

4. During 2018 Patriots sold merchandise that had been purchased for $125,000 to Seahawks for $250,000. All of this merchandise remained in the December 31 inventory of Seahawks. Half of the goods purchased remained unpaid at December 31, 2018.

5. The $50,000 Other Revenues for Seahawks related to Seahawks selling land to an unrelated party on April 1, 2018. Patriots had previously sold Seahawks the land for proceeds of $100,000 on July 1, 2016, when the land had a cost of $80,000.

6. Other Revenues reported by Patriots in 2018 includes $40,000 management fees charged to Seahawks. Seahawks included this amount in selling and admin expenses.

7. On January 1, 2017 Patriots sold Seahawks equipment with a book value of $450,000 for

$500,000. The equipment originally cost Patriots $630,000. It had a remaining life of five years at the date of the inter-company sale.

8. Both parties pay taxes at a rate of 30%.

REQUIRED:

1. Calculate goodwill relating to the acquisition of Seahawks on January 1, 2015 (2 marks) and prepare a acquisition differential amortization schedule to December 31, 2018. (2 marks)

Use the entity theory for calculations.

2. Summarize inter-company revenues and expenses / eliminations.

Summarize inter-company unrealized profits and losses before and after tax for all years. (8 marks)

Note: similar to solution for Self-Study Problem 2 Chapter 6 and Self-Study Problem 1 Chapter 7.

3. Prepare a Consolidated Income Statement for the year ended December 31, 2018.

(14 marks)

4. Prepare a Consolidated Balance Sheet as at Dec. 31, 2018:

(14 marks).

Show supporting calculations for Non-Controlling interest and Retained Earnings at Dec. 31, 2018

Ott QUESTION 4 (40 marks) On January 1, 2015, Patriots Corporation, parent company purchased 90% of the outstanding shares of Seahawks Company for $3,375,000. At that date, the book values and fair values of Seahawks' assets and liabilities were as follows: SEAHAWKS COMPANY January 1, 2015 Cash Accounts receivable- Inventory Property, plant and equipment, net Trademark Book Value $ 250,000 600,000 1,100,000 3,000,000 0 e $4.900.000 Fair Valuee $ 200,000 600,000 1,050,000 2,900,000 50,000 $4,850,000 1 $ 500,000 800,000 Accounts payable Bonds payable Common shares Retained earnings $ 500,000 800,000 2,000,000 1,600,000 $4.900.000 Patriots uses the cost method to account for its investment in Seahawks. The companies' balance sheets and income statements at December 31, 2018 were as follows: PATRIOTS CORPORATION AND SEAHAWKS COMPANY Balance Sheets December 31, 2018 Cash Accounts receivable Inventory Property, plant and equipment Accumulated Amortization Investment in Seahawks Company PATRIOTS $ 200,000 900,000 1,200,000 4,400,000 (1,000,000) 3,375,000 $8.900.000 SEAHAWKS $ 450,000 850,000 e 1,100,000 3,000,000 e (500,000) $4.900.000 e Accounts payable Bonds payable Common shares Retained earnings $ 500,000 800,000 3,000,000 4,600,000 $8.900.000 $ 300,000 800,000 2,000,000 1,800,000 $4,900,000 e Ott QUESTION 4 (40 marks) On January 1, 2015, Patriots Corporation, parent company purchased 90% of the outstanding shares of Seahawks Company for $3,375,000. At that date, the book values and fair values of Seahawks' assets and liabilities were as follows: SEAHAWKS COMPANY January 1, 2015 Cash Accounts receivable- Inventory Property, plant and equipment, net Trademark Book Value $ 250,000 600,000 1,100,000 3,000,000 0 e $4.900.000 Fair Valuee $ 200,000 600,000 1,050,000 2,900,000 50,000 $4,850,000 1 $ 500,000 800,000 Accounts payable Bonds payable Common shares Retained earnings $ 500,000 800,000 2,000,000 1,600,000 $4.900.000 Patriots uses the cost method to account for its investment in Seahawks. The companies' balance sheets and income statements at December 31, 2018 were as follows: PATRIOTS CORPORATION AND SEAHAWKS COMPANY Balance Sheets December 31, 2018 Cash Accounts receivable Inventory Property, plant and equipment Accumulated Amortization Investment in Seahawks Company PATRIOTS $ 200,000 900,000 1,200,000 4,400,000 (1,000,000) 3,375,000 $8.900.000 SEAHAWKS $ 450,000 850,000 e 1,100,000 3,000,000 e (500,000) $4.900.000 e Accounts payable Bonds payable Common shares Retained earnings $ 500,000 800,000 3,000,000 4,600,000 $8.900.000 $ 300,000 800,000 2,000,000 1,800,000 $4,900,000 e