QUESTION 3 Puffin Inc., a public company, acquired 75% of Sandpiper Inc.'s ordinary shares on January 1 , 2017 for $480,000 cash and accounted for the investment using the cost method. At the date of acquisition, Sandpiper had ordinary shares of $400,000 and retained earnings of $120,000. In determining the fair value of Sandpiper on January 1, 2017, the management of Puffin determined that the goodwill associated with Sandpiper was $36,000. This goodwill has since been impaired in 2019 by $3,000 and in 2022 by $5,000. Puffin's management also determined that some of Sandpiper's equipment with a remaining useful life of six years was overvalued by $42,000 on the date of acquisition, while its inventory was undervalued by $26,000. Sandpiper also had a piece of land that was undervalued by $100,000. Puffin sold a piece of land with a carrying value of $65,000 to Sandpiper during 2018 for $40,000. Sandpiper sold 25% of this land to another company in 2022 for $26,000. Sandpiper borrowed $75,000 from Puffin during 2018. The principal amount of the loan is due on December 31,2028 and interest at an annual rate of 7% is payable on December 31 annually. Puffin paid the interest for 2022 when due. Sandpiper sold a machine to Puffin on January 1, 2020 for a gain of $45,000. The machine still had a useful life of five years on that date. Both companies use straight-line method for depreciation. Each year since the acquisition, Sandpiper has been selling merchandise to Puffin at a gross profit percentage of 33.33%. Sales of Sandpiper to Puffin were $600,000 and $850,000 in 2021 and 2022 , respectively. Puffin's beginning and ending inventory for 2022 contained $42,000 and $90,000 of merchandise bought from Sandpiper, respectively. In 2022, Puffin for the first time sold raw materials to Sandpiper for $500,000. The sales price included a markup of 25% on cost. Sandpiper still had 10% of the raw materials in inventory at December 31,2022. Puffin charges Sandpiper a management fee of $5,000 per month. The fee for December was still outstanding on December 31, 2022. Puffin and Sandpiper paid dividends of $22,000 and $15,000 respectively in 2022. Both companies have a marginal tax rate of 22%. The abbreviated financial statements for Puffin Inc. and Sandpiper Inc, at year-end December 31 , Required: (SHOW ALL CALCULATIONS CLEARLY) 1. Prepare the consolidated statement of income and statement of financial position for the Puffin Group for the year ended December 31, 2022. Consider all amounts material. Round amounts to the nearest dollar. 2. What is the amount for dividends paid that would appear on the consolidated financial statements? QUESTION 3 Puffin Inc., a public company, acquired 75% of Sandpiper Inc.'s ordinary shares on January 1 , 2017 for $480,000 cash and accounted for the investment using the cost method. At the date of acquisition, Sandpiper had ordinary shares of $400,000 and retained earnings of $120,000. In determining the fair value of Sandpiper on January 1, 2017, the management of Puffin determined that the goodwill associated with Sandpiper was $36,000. This goodwill has since been impaired in 2019 by $3,000 and in 2022 by $5,000. Puffin's management also determined that some of Sandpiper's equipment with a remaining useful life of six years was overvalued by $42,000 on the date of acquisition, while its inventory was undervalued by $26,000. Sandpiper also had a piece of land that was undervalued by $100,000. Puffin sold a piece of land with a carrying value of $65,000 to Sandpiper during 2018 for $40,000. Sandpiper sold 25% of this land to another company in 2022 for $26,000. Sandpiper borrowed $75,000 from Puffin during 2018. The principal amount of the loan is due on December 31,2028 and interest at an annual rate of 7% is payable on December 31 annually. Puffin paid the interest for 2022 when due. Sandpiper sold a machine to Puffin on January 1, 2020 for a gain of $45,000. The machine still had a useful life of five years on that date. Both companies use straight-line method for depreciation. Each year since the acquisition, Sandpiper has been selling merchandise to Puffin at a gross profit percentage of 33.33%. Sales of Sandpiper to Puffin were $600,000 and $850,000 in 2021 and 2022 , respectively. Puffin's beginning and ending inventory for 2022 contained $42,000 and $90,000 of merchandise bought from Sandpiper, respectively. In 2022, Puffin for the first time sold raw materials to Sandpiper for $500,000. The sales price included a markup of 25% on cost. Sandpiper still had 10% of the raw materials in inventory at December 31,2022. Puffin charges Sandpiper a management fee of $5,000 per month. The fee for December was still outstanding on December 31, 2022. Puffin and Sandpiper paid dividends of $22,000 and $15,000 respectively in 2022. Both companies have a marginal tax rate of 22%. The abbreviated financial statements for Puffin Inc. and Sandpiper Inc, at year-end December 31 , Required: (SHOW ALL CALCULATIONS CLEARLY) 1. Prepare the consolidated statement of income and statement of financial position for the Puffin Group for the year ended December 31, 2022. Consider all amounts material. Round amounts to the nearest dollar. 2. What is the amount for dividends paid that would appear on the consolidated financial statements
