QUESTION 1 (30 Marks)

On January 1, 2017, Ketchup Corporation (a publicly-traded Canadian company) purchased 75% of the common shares in Mustard Ltd. for $2,160,000. At the time, Mustard had 500,000 common shares outstanding with a book value of $1,100,000. Mustards retained earnings on the date of acquisition were $1,450,000. Ketchup reviewed Mustards balance sheet, and concluded:

• Mustards accounts receivable was understated by $20,000.
• Some of Mustards inventory had a fair value $12,000 less than the carrying amount reported on Mustards balance sheet.
• Some of Mustards equipment had a fair market value $180,000 greater than the carrying value on Mustards books. The equipment had an estimated remaining useful life of 10 years on the date of acquisition.
• The land on Mustards books had a fair market value $50,000 greater than what was reported on Mustards balance sheet.

Below are the financial statements for Ketchup and Mustard as at December 31, 2022:

ADDITIONAL INFORMATION:

• Ketchup tested the goodwill on its books annually for impairment. The impairment testing revealed a $10,000 impairment of goodwill in 2018, and a $18,000 impairment in 2019. The 2022 impairment test revealed a $15,000 decline in value of goodwill.
• Both companies depreciated all property, plant, and equipment using the straight-line method, and both companies used the FIFO inventory flow assumption to value inventories. There were no intercompany transactions during the year, and neither company declared or paid any dividends.

Required:

Prepare a consolidated income statement and a consolidated balance sheet for Ketchup Corporation for the year ended December 31, 2022. All calculations must be shown in an orderly manner, including totals for each account balance, to obtain marks. (30 Marks)

Ketchup Mustard Assets: Liabilities and shareholders' equity: Accounts payable Long-term liabilities Deferred income taxes Common shares, no par value Retained earnings Total liabilities and shareholders' equity Income Statements Sales Cost of goods sold Depreciation expense Selling and administrative expense Income tax expense Total expenses Net income 950,3004,705,000395,3001,600,0007,970,000$15,620,600 \begin{tabular}{lr} $ & 9,500,000 \\ & 6,650,000 \\ & 725,000 \\ & 625,100 \\ & 280,400 \\ \hline$ & 8,280,500 \\ \hline$ & 1,219,500 \\ \hline \hline \end{tabular} 473,700750,000123,0001,100,0003,850,000$6,296,700 \begin{tabular}{lr} $ & 3,650,000 \\ 2,555,000 \\ & 225,000 \\ 215,000 \\ 213,000 \\ \hline$3,208,000 \\ \hline$ & 442,000 \\ \hline \hline \end{tabular}