Question 3

On May 1, 2013, Peat Co. purchased all of Sorbet Ltd.s issued common shares for $630,000. At the acquisition date, Sorbets financial statements included the following balances:

Share capital $400,000

Retained earnings 210,000

Goodwill 10,000

At the acquisition date, Sorbets identifiable assets and liabilities were equal to their fair values, except in the case of inventory that had a book value of $80,000 and a fair value of $86,000, and equipment that had a book value of $360,000 and a fair value of $370,000. The equipment was originally purchased for $480,000. At the acquisition date, the equipment had a remaining useful life of 5 years and was amortized using the straight-line method. All the inventory that Sorbet had on hand at the acquisition date was sold by October 2013. Sorbets goodwill has not shown indications of impairment. Both Peat and Sorbet have April 30^th year-ends and did not have any intercompany sales with each other.

The financial statements for Peat and Sorbet at April 30, 2015 are presented on the following pages.

Statement of Financial Position

April 30, 2015

Peat Co. Sorbet Ltd.

Assets:

Current assets:

Cash $ 52,000 $ 161,600

Accounts receivable 100,000 80,000

Inventory 120,000 170,000

272,000 411,600

Non-current assets:

Equipment, net 558,000 368,000

Furniture and fixtures, net 51,000 51,600

Investment in Sorbet Ltd. 630,000 -

Goodwill ___-___ 10,000

1,239,000 429,600

Total assets $ 1,511,000 $ 841,200

Liabilities and shareholders equity:

Current liabilities:

Accounts payable $ 69,000 $ 19,600

Non-current liabilities:

Loan payable 22,000 32,000

Total liabilities 91,000 51,600

Shareholders equity:

Share capital 1,000,000 400,000

Retained earnings 420,000 389,600

1,420,000 789,600

Total liabilities and shareholders equity $ 1,511,000 $ 841,200

Condensed Statement of Income

For the year ended April 30, 2015

Peat Co. Sorbet Ltd.

Sales $ 250,000 $ 180,000

Expenses 170,000 130,000

Net income $ 80,000 $ 50,000

Statement of Changes in Equity

For the year ended April 30, 2015

Peat Co. Sorbet Ltd.

Share capital $ 1,000,000 $ 400,000

Retained earnings, May 1, 2014 340,000 339.600

Net income 80,000 50,000

Retained earnings, April 30, 2015 420,000 389,600

Total shareholders equity $ 1,420,000 $ 789,600

Required:

Prepare Peats consolidated financial statements for April 30, 2015. Ignore income taxes.