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Power Ltd acquired Sunny Co. as a joint venture on January 1,2019 by purchasing 30% voting shares of Sunny for $6,000,000, and there are no
Power Ltd acquired Sunny Co. as a joint venture on January 1,2019 by purchasing 30% voting shares of Sunny for $6,000,000, and there are no acquisition differentials. Sunny's reported retained earnings is $800,000 on January 1,2019, and is $900,000 on December 31, 2020. Sunny reported net income $300,000 for year 2020, and declared dividends $200,000. In year 2020, Power sold merchandises $1000,000 to Sunny who also sold goods $500,000 to Power in 2020. On December 31, 2020, Power's ending inventory contained after-tax intercompany profit $40,000, whereas Sunny's ending inventory contained after-tax intercompany profit $70,000. On January 1,2019, Power sold a machine to Sunny with an after-tax gain of $150,000. The machine has 5-year remaining useful life at the transaction date. Power uses equity method for its investment in Sunny. Both Power and Sunny has a December 31 year-end.
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