QUESTION #(40MARKS)

PART A(32 MARKS)

On January 1^st. 2017, the X Company acquired 55% of the Y Company for $4,400,000. At that time, Y Company s assets and liabilities had the following book and fair values:-

Y COMPANY

January 1,2017

Book ValueFair Value

Cash............$280,000.$280,000

Accounts receivable..............1,500,000..1,500,000

Inventory.............2,500,000...2,900,000

Goodwill ............ 100,000 40,000

Capital assets..........5,000,000.4,580,000

TOTAL ASSETS.$9,380,000.$9,350,000

Accounts Payable.$1,340,000..$1,300,000

Bonds Payable. 240,000 250,000

Common Stock 4,000,000

Retained Earnings. 3,800,000

TOTAL LIABILITIES & OWNERS EQUITY..$9,380,000

The capital assets consisted of equipment with a remaining useful life of 5 years at January 1^st, 2017. Inventory on hand on at January 1^st.2017 were all sold by December 31^st.2019.

X evaluates the consolidated goodwill on annual basis for impairment. There were no goodwill impairment in 2017 and 2018 but goodwill was impaired in 2020 by $50,000 and by $80,000 in 2021.

Bonds have ten years to maturity.

Both companies have a tax rate of 40%.

The X Company uses the cost method to record its investment in Y. The companies balance sheets at December 31^st. 2021 were as follows:-

X CORPORATION AND Y COMPANY

Balance Sheets

December 31^st. 2021

XY

Cash..$ 500,000..$1,180,000

Accounts receivable.. 1,800,000.. 1,900,000

Goodwill. 100,000.. 40,000

Inventory 3,000,000.. 2,700,000

Capital assets, net.. 6,400,000.. 5,000,000

Investment in Y Company 4,400.000..0..

TOTAL ASSETS.$16,200,000..10,820,000

Accounts Payable.$ 580,000. 600,000

Bonds payable 220,000. 240,000

Common Stock. 7,000,000 4,000,000

Retained Earnings 8,400,000.5,980,000

TOTAL LIABILITIES & OWNERS EQUITY$ 16,200,00010,820,000

Additional Information:-

9. During 2020 and 2021, Y sold inventory to X at a gross profit margin of 25% and X sold inventory to Y at a mark-up of 30% on cost as follows:-

2020...2021

Intercompany sales- Y to X..$3,000,000$3,700,000

Intercompany sales of X to Y$4,000,000...$4,200,000

Ys goods in Xs inventory at December 31. 650,000. 700,000

Xs goods in Ys inventory at December 31. 0.. 260,000

Amount owed to X for intercompany purchases

As at December 31^st 500,000. 480,000

ii. On July 1^st. 2020, Y sold equipment with a net book value of $1,500,000 to X for $1,800,000.

The equipment originally cost Y $1,600,000 and a remaining useful life of 15 years at the time of the intercompany sale.

Required:-

9. Calculate the following balances for the consolidated balance sheet as at December 31^st. 2021 using the Acquisition Method:-

1. Consolidated Retained Earnings at December 31^st.2021(5.5 marks)
2. Inventory(3marks)
3. Goodwill(2 marks)
4. Deferred income taxes(1.5 marks)
5. Non controlling interest(3 marks)

MARKS ALLOCATED FOR WORKING PAPERS (17 MARKS)

PART B(8 MARKS):

If instead of using the acquisition method of consolidated X has used the IDENTIFIABLE NET ASSET method :-

1. Compute the reported consolidated goodwill on the consolidated balance sheet (2 marks)
2. Compute the NCI on the consolidated balance sheet(2 marks)
3. Apart from Proportionate Consolidation ,explain the alternative conceptual method which can be applied when accounting for joint ventures.(4 marks)

Please Answer it ASAP.