Question 3

The partial trial balances of Most Co. and Least Co. at December 31, Year 10, were as follows:

	Most Co.				Least Co.
	Dr		Cr.		Dr		Cr.
Investment in S. Co.	108,000
Common shares			152,000				76,000
Retained earnings, beginning of year			117,000				48,000

Additional Information

The investment in the shares of Least Co. (a 90% interest) was acquired January 2, Year 6, for $108,000. At that time, the shareholders equity of Least Co. was common shares of $76,000 and retained earnings of $22,000 and the common shares for Most Co. of $152,000.

Net incomes of the two companies for the year were as follows:

Most Co.	$62,000
Least Co.	50,000

During Year 10, sales of Most Co. to Least Co. were $12,000, and sales of Least Co. to Most Co. were $52,000. Rates of gross profit on intercompany sales in Years 9 and 10 were 40% of sales.

On December 31, Year 9, the inventory of Most Co. included $9,000 of merchandise purchased from Least Co., and the inventory of Least Co. included $5,000 of merchandise purchased from Most Co. On December 31, Year 10, the inventory of Most Co. included $22,000 of merchandise purchased from Least Co., and the inventory of Least Co. included $7,000 of merchandise purchased from Most Co.

During the year ended December 31, Year 10, Most Co. paid dividends of $14,000 and Least Co. paid dividends of $12,000.

At the time that Most Co. purchased the shares of Least Co., the acquisition differential was allocated to patents of Least Co. These patents are being amortized for consolidation purposes over a period of five years.

In Year 8, land that originally cost $42,000 was sold by Least Co. to Most Co. for $52,200. The land is still owned by Most Co.

Assume a corporate tax rate of 40%.

Required:

Calculate consolidated net income for the year 10. (15 marks)

Calculate retained earnings January 01, year 10. (8 marks)