QUESTION 1 (40 marks) On January 1, 2020, Earth Bound Corporation (EBC), parent company purchased 85% of the outstanding shares of Terra Trove Company (TTC) for $3,150,000. At that date, the book values and fair values of Terra Trove's assets and liabilities were as follows: TERRA TROVE COMPANY January 1, 2020 Book Value Fair Value Cash $ 190,000 $ 190,000 Accounts receivable 600,000 600,000 Inventory 1,110,000 1,200,000 Property. plant and equipment, net 3,000,000 2,800,000 Patent 0 60.000 $4.900,000 $4.850.000 Accounts payable $ 500,000 $ 500,000 Bonds payable 800,000 800,000 Common shares 2,000,000 Retained earnings 1.600.000 $4.900,000 Earth Bound uses the cost method to account for its investment in Terra Trove. The companies' balance sheets and income statements at December 31, 2023 were as follows: EARTH BOUND CORPORATION AND TERRA TROVE COMPANY Balance Sheets December 31, 2023 EARTH BOUND TERRA TROVE Cash $ 400,000 $ 450,000 Accounts receivable 450,000 850,000 Inventory 1,500,000 1,100,000 Property, plant and equipment 4,400,000 3,000,000 Accumulated Amortization (1,000,000) (500,000) Investment in Terra Trove Company 3.150.000 $8.900,000 $4.900.000 Accounts payable $ 500,000 $ 300,000 Bonds payable 800,000 800,000 Common shares 3,000,000 2,000,000 Retained earnings 4,600,000 1,800,000 $8.900.000 $4.900.000 QUESTION 1 (continued) EARTH BOUND CORPORATION AND TERRA TROVE COMPANY Income Statements and Retained Earnings year ended December 31, 2023 EARTH BOUND_ TERRA TROVE Sales $3,500,000 $1,750,000 Dividend Revenue 42,500 -- Other Revenues 92.500 50,000 Total Revenues $3,635,000 $1,800,000 Cost of Goods Sold 2.400,000 1.300.000 Gross Profit 1,235,000 500.000 Selling and administrative expenses 204,000 84,000 Bond Interest expense 46,000 56,000 Amortization 300,000 160,000 Income Before Tax 685,000 200,000 Income taxes (30%) 205.500 60.000 Net income 479,500 140,000 Retained earnings Jan 1, 2023 4,195,500 1,710,000 Dividends 75.000 50.000 Retained earnings Dec 31, 2023 $4.600.000 $1.800.000 Additional Information 1. Property, plant and equipment (PPE) items held by Terra Trove as of January 1, 2020 are being amortized over their useful life of 10 years. Inventory held by Terra Trove as of January 1, 2020 was sold by September 1, 2020. The patent had an estimated useful life of 20 years at January 1, 2020. 2. During 2022 and 2023, the fair value of goodwill declined by $10,000 and $20,000, respectively. The fair value of goodwill was not impaired prior to 2022. 3 In 2022, Terra Trove sold Earth Bound inventory for $90,000. Terra Trove sold the inventory at a 25% gross profit. Similarly, in 2023 Terra Trove sold Earth Bound inventory for $75,000, at a 25% gross profit. As of December 31, 2022 and 2023, one-half of the inventory remained in Earth Bound's inventory. 4. During 2023 Earth Bound sold merchandise that had been purchased for $125,000 to Terra Trove for $250,000. All of this merchandise remained in the December 31 inventory of Terra Trove. Half of the goods purchased remained unpaid at December 31, 2023. 5 The $50,000 \"Other Revenues\" for Terra Trove related to Terra Trove selling land to an unrelated party on April 1,2023. Earth Bound had previously sold Terra Trove the land for proceeds of $100,000 on July 1, 2022, when the land had a cost of $80,000. QUESTION 1 (continued) 6. Other Revenues reported by Earth Bound in 2023 includes $40,000 management fees charged to Terra Trove. Terra Trove included this amount in selling and admin expenses. 7 On January 1, 2022 Earth Bound sold Terra Trove equipment with a book value of $450.,000 for $500,000. The equipment originally cost Earth Bound $630,000. It had a remaining life of five years at the date of the inter-company sale. 8. Both parties pay taxes at a rate of 30%. REQUIRED: a. Calculate goodwill relating to the acquisition of Terra Trove on January 1, 2020 (2 marks) and prepare a acquisition differential amortization schedule to December 31, 2023. (2 marks) Use the entity theory (FVE) for calculations. b. Summarize inter-company revenues and expenses (eliminations). Summarize inter-company unrealized profits and losses before and after tax for all years. (8 marks) C: Prepare a Consolidated Income Statement for the year ended December 31, 2023. (14 marks) d. Prepare a Consolidated Balance Sheet as at December 31, 2023 (14 marks) Show supporting calculations for Non-Controlling Interest and Retained Earnings at Dec. 31, 2023. (14 marks)