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Question 3 options:

On January 1, Year 7, the Vine Company purchased 60,000 of the 80,000 ordinary shares of the Devine Company for $80 per share. On that date, Devine had ordinary shares of $3,580,000, and retained earnings of $2,020,000. When acquired, Devine had inventories with fair values $100,000 less than carrying amount, a parcel of land with a fair value $120,000 greater than the carrying amount, and equipment with a fair value $200,000 less than carrying amount. There were also internally generated patents with an estimated market value of $450,000 and a five-year remaining life. A long-term liability had a market value $150,000 greater than carrying amount; this liability was paid off December 31, Year 10. All other identifiable assets and liabilities of Devine had fair values equal to their carrying amounts. Devines accumulated depreciation on the plant and equipment was $420,000 at the date of acquisition.

At the acquisition date, the equipment had an expected remaining useful life of ten years. Both companies use the straight-line method for all depreciation and amortization calculations and the FIFO inventory cost flow assumption. Assume a 40% income tax rate on all applicable items and that there were no impairment losses for goodwill.

On September 1, Year 11, Devine sold a parcel of land to Vine and recorded a total non-operating gain of $320,000.

Sales of finished goods from Vine to Devine totalled $920,000 in Year 10 and $1,920,000 in Year 11. These sales were priced to provide a gross profit margin on selling price of 33 1/3% to the Vine Company. Devines December 31, Year 10, inventory contained $276,000 of these sales; December 31, Year 11, inventory contained $576,000 of these sales.

Sales of finished goods from Devine to Vine were $720,000 in Year 10 and $1,120,000 in Year 11. These sales were priced to provide a gross profit margin on selling price of 40% to the Devine Company. Vines December 31, Year 10, inventory contained $20,000 of these sales; the December 31, Year 11, inventory contained $420,000 of these sales.

Vines investment in Devines account is carried in accordance with the cost method and includes advances to Devine of $120,000, which are also included in current liabilities.

There are no intercompany amounts other than those noted, except for the dividends of $500,000 (total amount) declared and paid by Devine.

INCOME STATEMENTS

For year ending December 31, Year 11

(in thousands of dollars)

	Vine	Devine
Sales	$ 13,600	$ 4,300
Dividends, investment income, and gains	2,400	3,000
Total income	16,000	7,300
Cost of goods sold	11,000	2,800
Other expenses	500	500
Income taxes	200	200
Total expenses	11,700	3,500
Profit	$ 4,300	$ 3,800

STATEMENTS OF FINANCIAL POSITION

December 31, Year 11

(in thousands of dollars)

	Vine	Devine
Cash and current receivables	$ 2,220	$ 3,700
Inventories	2,800	1,000
Investment in Devine, cost	4,920	0
Plant and equipment	17,000	10,000
Accumulated depreciation	(7,600)	(6,800)
Land	6,000	2,500
Total assets	$ 25,340	$ 10,400
Current liabilities	$ 740	$ 120
Deferred income taxes	3,000	100
Long-term liabilities	1,200	500
Ordinary shares	10,000	3,580
Retained earnings	10,400	6,100
Total equity and liabilities	$ 25,340	$ 10,400

Instructions: Management has asked you to determine the amounts to prepare on the financial statements which will be provided to the external users. Management will not tolerate errors in the numbers that you provide or formatting errors as these numbers will be directly inputted into the financial statements.

Enter all numbers without dollar signs. Round numbers to the nearest whole dollar, do not enter any decimals in your number. Use commas properly. Do not show numbers such as expenses and dividends as negative. If the amount is zero, enter 0, do not leave any answers blank. For example, a properly formatted number is 125,250. Numbers incorrectly formatted with not result in any marks.

Part A

Determine the amount of goodwill at the acquisition date.

Part B

Determine the following numbers from the consolidated income statement for the year ending December 31, Year 11

Sales

Dividend, investment income, and gains

Cost of goods sold

Other expenses

Income tax expense

Profit

Non-controlling interest

Part C

Calculate the consolidated retained earnings at December 31, Year 11. The consolidated retained earnings is

Part D

Determine the following numbers from the consolidated balance sheet at December 31, Year 11

Cash and current receivables

Inventories

Deferred income tax asset

Goodwill

Plant and equipment

Accumulated depreciation

Land

Current liabilities

Deferred tax liability

Long-term liabilities

Ordinary shares

Non-controlling interest