QUESTION 1 (50 MARKS) On January 2, Year 1, Poplar Lid. purchased 75% of the outstanding shares of Spruce Ltd. for $2,500,000. At that date, Spruce had common shares of $500,000 and retained earnings of $1,250,000. Poplar acquired the Spruce shares to obtain control of mineral rights owned by Spruce. At the date of acquisition, these mineral rights were valued at $750,000, were not recognized on Spruce's separate- entity balance sheet, and had an indefinite useful life. Except for the mineral rights, the carrying amount of the recorded assets and liabilities of Spruce were equal to their fair values. On December 31, Year 4, the trial balances of the two companies were as follows: Popler Spruce Cash $ 1,000,000.00 $ 500,000.00 Accounts receivable $ 2,000,000.00 $ 356,000.00 Inventory $ 3,000,000.00 $2,250,000.00 Plant and equipment $ 14,000,000.00 $2,900,000.00 Investment in Spruce (cost) $ 2,000,000.00 Investment in Poplar bonds $ 250,000.00 Cost of goods sold $ 2,400,000.00 $ 850,000.00 Other expenses 962,000.00 $ 300,000.00 Interest expense 40,000.00 Income tax expense 600,000.00 $ 350,000.00 Dividends 600,000.00 $ 250,000.00 $26,602,000.00 $8,006,000.00 Accounts payable $ 2,502,000.00 $2,486,000.00 Accumulated depreciation: plant and equipment $ 4,000,000.00 $1,000,000.00 Bonds payable $ 500,000.00 Common shares $ 4,500,000.00 $ 500,000.00 Retained earnings, January 1 $ 10,000,000.00 $2,000,000.00 Sales $ 4,900,000.00 $2,000,000.00 Dividend revenue $ 200,000.00 Interest revenue S 20,000.0 $26,602,000.00 $8,006,000.00Additional Information . The Year 4 net incomes of the two companies are as follows: Poplar Ltd. $1 ,0QB,000 Spruce Ltd.520,000 . The mineral rights owned by Spruce have increased in value since the date of acquisition and were worth $925,000 it December 31, Year 4. . On January 2, Year 2, Spruce sold equipment to Poplar for $500,000. The equipment had a carrying amount of $400,000 at the time ofthe sale. The remaining useful life of the equipment was ve years. The Year 4 opening inventories of Poplar contained $500,000 of merchandise purchased from Spruce during Year 3. Spruce had recorded a gross prot of $200,000 on this merchandise. During Year 4, Spruce's sales to Poplar totaled $1,000,000. These sales were made at a gross prot rate of 40%. Poplar's ending inventory contains $300,000 of merchandise purchased from Spruce. Other expenses include depreciation expense and copyright amortization expense. On January 2, Year 2, Poplar issued 8%, T-year bonds with a face value of $500,000 at par. Interest is paid annually on December 31. On January 2, Year 4, Spruce purchased one-half of this issue on the open market at a cost of $250,000. Tax allocation will be at a rate of 40%. Required: I. ii. iii. iv. vi. vii. viii. Calculate Acquisition differential and goodwill {4 Marks}. Calculate inter-company prot on inventory (4 Marks). Schedule on gain on equipment {4 Marks). Calculate deferred income tax (4 Marks}. Calculate NCI for consolidated balance sheet (7 Marks). Statement of consolidated retained earnings (7 Marks). Consolidated Income statement {10 Marks). Consolidated Balance Sheet (10 Marks}