Problem 05-12 (LO1, 2, 3, 4)

Foxx Corp. purchased 75% of the outstanding shares of Rabb Ltd. on January 1, Year 3, at a cost of $148,600. Non-controlling interest was valued at $55,000 by an independent business valuator at the date of acquisition. On that date, Rabb had common shares of $60,000 and retained earnings of $40,000. Fair values were equal to carrying amounts for all the net assets except the following:

	Carrying Amount			Fair Value
Inventory	$	40,000		$	24,000
Equipment		47,000			74,000
Software					20,000

The equipment had an estimated remaining useful life of six years on January 1, Year 3, and the software was to be amortized over ten years. Foxx uses the cost method to account for its investment. The testing for impairment at December 31, Year 6, yielded the following fair values:

Software	$	10,000
Goodwill		71,031

The impairment loss on these assets occurred entirely in Year 6. Amortization expense is grouped with administrative expenses, and impairment losses are grouped with miscellaneous expenses. The parents share of the goodwill noted above is $49,262.

The following are the financial statements of Foxx Corp. and its subsidiary Rabb Ltd. for Year 6:

BALANCE SHEETS
At December 31, Year 6
	Foxx Corp.			Rabb Ltd.
Cash	$			$	11,000
Accounts receivable		50,000			40,000
Note receivable					50,000
Inventory		76,000			54,000
Equipment, net		270,000			86,000
Land		200,000			40,000
Investment in Rabb		148,600
	$	744,600		$	281,000
Bank indebtedness	$	140,000		$
Accounts payable		80,000			70,000
Notes payable		50,000
Common shares		160,000			60,000
Retained earnings		314,600			151,000
	$	744,600		$	281,000

STATEMENTS OF RETAINED EARNINGS
Year ended December 31, Year 6
	Foxx Corp.				Rabb Ltd.
Retained earnings, January 1, Year 6	$	203,000			$	142,000
Net income		145,250				48,000
Dividends		(33,650	)			(39,000	)
Retained earnings, December 31, Year 6	$	314,600			$	151,000

INCOME STATEMENTS
For the year ended December 31, Year 6
	Foxx Corp.			Rabb Ltd.
Sales	$	831,000		$	350,000
Investment income		29,250			8,600
		860,250			358,600
Cost of sales		490,000			210,000
Administrative expenses		45,000			17,000
Miscellaneous expenses		120,000			41,600
Income taxes		60,000			42,000
		715,000			310,600
Net income	$	145,250		$	48,000

Additional Information

The notes payable are intercompany.

Required:

(a) Prepare the Year 6 consolidated financial statements. (Input all values as positive numbers. Leave no cells blank - be certain to enter "0" wherever required. Round your intermediate computations to nearest whole dollar value. Omit $ sign in your response. The balance sheet total may vary due to rounding.)

Foxx Corp. Statement of Consolidated Retained Earnings Year ended December 31, Year 6
(Click to select) Balance December 31 Balance January 1	$
(Click to select) Net income Net loss
(Click to select) Less: Dividends Add: Dividends
(Click to select) Balance December 31 Balance January 1	$

(b) Calculate goodwill impairment loss and non-controlling interest on the consolidated income statement for the year ended December 31, Year 6, under the identifiable net assets method. (Round intermediate calculations and final answers to whole number. Omit $ sign in your response.)

Goodwill impairment loss		$
NCI identifiable net assets method