Question 1 (20 marks) On January 1, Year 7, Port purchased 75% of the outstanding shares of Snow for $1,287,000. At that time, Snow's assets and liabilities had the following book and fair values. SNOW LTD. January 1, Year 7 Book value Fair value Cash $ 140,000 $ 140,000 Accounts receivable 350,000 350,000 Inventory 345,000 351,000 Capital assets 1,000,000 1 070 000 5 1,835,000 1,911,000 Accounts payable $ 255,000 $ 255,000 Common shares 300,000 Retained earnings 1,280,000 5 1,835,000 Capital assets have a 10 year remaining life. Balance Sheets Cash Accounts receivable Inventory Capital assets Investment in Snow Accounts payable Deferred income taxes Long-term debt Common shares Retained earnings December 31, Year 7 PORT $ 78,000 350,000 420,000 2,075,000 1,287,000 $ 4,210,000 $ 55,000 75,000 900,000 600,000 2,580,000 $4,210,000 SNOW $ 160,000 410,000 564,000 950,000 $ 2,084,000 $ 377,000 60,000 300,000 1 347 000 $2,084,000 Statements of Income and Retained Earnings Year ended December 31, Year 7 Sales $ 3,750,000 Cost of goods sold 2,500,000 1,250,000 Other expenses 755,000 Interest on long-term debt 90,000 Depreciation 70,000 Other income (60,000) 855,000 Net income before tax 395,000 Income tax 124,500 Net income after tax 270,500 TRU Open Learning 95 980,000 392,000 588,000 328,000 50,000 378,000 210,000 63,000 147,000 Year 7 2,459,500 1,280,000 Dividends declared (150,000) (80,000) Retained earnings, December 31, Year 7 $ 2&80300 1&47300 During Year 7, Port sold goods to Snow for $130,000. These goods cost Port $85,000. Snow sold 60% of these goods during Year 7. Also during Year 7, Snow sold goods to Port for $90,000 earning a gross profit of 40%. Port had 20% of these goods in its Year 7 ending inventory. The tax rate for both companies is 30%. On December 31, Year 7, Port determined that there was a $3,000 goodwill impairment. Both companies use straight-line depreciation. Port accounts for Snow using the Fair Value Enterprise method (Entity theory) and cost methods. Req uired: a) Prepare all the calculations required to prepare consolidated financial statements. 1. Calculate goodwill using fair values 2. Calculate acquisition differential and prepare the ADA table. (2 marks) 3. Calculate unrealized inventory profits before and after tax 4. Calculate consolidated net income and the NCI share. 5. Calculate consolidated retained earnings and NCI Balance Sheet