QUESTION 4(40 marks)

On January 1, 2016, Promenade Corporation, parent company purchased 90% of the outstanding shares of Scooters Company for $3,375,000. At that date, the book values and fair values of Scooters' assets and liabilities were as follows:

QUESTION 4 (40 marks) On January 1, 2016, Promenade Corporation, parent company purchased 90% of the outstanding shares of Scooters Company for $3.375.000. At that date, the book values and fair values of Scooters' assets and liabilities were as follows: SCOOTERS COMPANY January 1, 2016 Book Value Fair Value Cash $ 200.000 $ 200.000 Accounts receivable 600,000 600,000 Inventory 1,100,000 1,050,000 Property, plant and equipment, net 3,000,000 2,900,000 Trademark 0 50.000 $4.900.000 $4.850.000 Accounts payable $ 500,000 $ 500,000 Bonds payable 800,000 800,000 Common shares 2,000,000 Retained earnings 1,600,000 $4.900.000 Promenade uses the cost method to account for its investment in Scooters. The companies' balance sheets and income statements at December 31, 2019 were as follows: PROMENADE CORPORATION AND SCOOTERS COMPANY Balance Sheets December 31, 2019 PROMENADE SCOOTERS Cash $ 400,000 Accounts receivable 900,000 850,000 Inventory 1,200.000 1,100,000 Property: plant and equipment 4,400,000 3,000,000 Accumulated Amortization (1,000,000) (500,000) Investment in Seahawks Company 3,000.000 $8.900.000 $4.900.000 Accounts payable S 500,000 $ 300,000 Bonds payable 800.000 800,000 Common shares 3,000,000 2,000,000 Retained earnings 4,600,000 1,800,000 $8.900.000 $4.900.000PROMENADE CORPORATION AND SCOOTERS COMPANY Income Statements and Retained Earnings year ended December 31, 2019 PROMENADE SCOOTERS Sales $3,500,000 $1,750,000 Dividend Revenue 45,000 Other Revenues 90.000 50.000 Total Revenues $3,635,000 $1.800,000 Cost of Goods Sold 2,400,000 1,300,000 Gross Profit 1,235,000 500,000 Selling and administrative expenses 204,000 84.000 Bond Interest expense 46,000 56,000 Amortization 300.000 160.000 Income Before Tax 685,000 200,000 Income taxes (35%) 205,500 60.000 Net income 479,500 140,000 Retained earnings Jan 1, 2019 4,195,500 1,710,000 Dividends 75,000 50,000 Retained earnings Dec 31, 2019 $4.600.000 $1.800.000 Additional Information 1 . Property, plant and equipment (PPE) items held by Scooters as of January 1, 2016 are being amortized over their useful life of 10 years. Inventory held by Scooters as of January 1, 2016 was sold by September 1, 2016. The trademark had an estimated useful life of 20 years at January 1, 2016. 2. During 2018 and 2019, the fair value of goodwill declined by $10,000 and $20,000, respectively. The fair value of goodwill was not impaired prior to 2018. 3. In 2018, Scooters sold Promenade inventory for $90,000. Scooters sold the inventory at a 25% gross profit. Similarly, in 2019 Scooters sold Promenade inventory for $75,000, at a 25% gross profit. As of December 31, 2018 and 2019. one-half of the inventory remained in Promenades' inventory. 4. During 2019 Promenade sold merchandise that had been purchased for $125,000 to Scooters for $250,000. All of this merchandise remained in the December 31 inventory of Scooters. Half of the goods purchased remained unpaid at December 31, 2019.3. The $50,000 \"Other Revenues" for Scooters related to Scooters selling land to an unrelated party on April 1, 2019. Promenade had previously sold Scooters the land for proceeds of $100,000 on July 1: 201 1', when the land had a cost of $30,000. IS'ther Revenues reported by Promenade in 2019 includes $40,000 management fees chargedto Scooters. Scooters included this amount in selling and admin expenses. On I anuary 1= 2018 Promenade sold Scooters equipment with a book value of $450,000 for $5 00,000- The equipment originally cost Promenade $30,000. It had a remaining life of ve years at the date of the intercompany sale. Both parties pay taxes at a rate of 35%. REQUIRED: :1. Calculate goodwill relating to the acquisition of Scooters on January 1, 2016 (2 marks) and prepare a acquisition differential amortization schedule to December 31, 2019. {2 marks) Use the entity theory (Fair Value Enterprise FVE) for calculations. Summarize intercompany revenues and expenses 1' eliminations. Summarize intercompany unrealized profits and losses before and aer tax for all years. (8 marks) Note: similar to solution for Self-Study Problem 2. Chapter 6 and SelfStudy Problem 1 Chapter 1'. Prepare a Consolidated Income Statement for the year ended December 31, 2019. {14 marks} Prepare a Consolidated Balance Sheet as at Dec. 31, 2019: {14 marks)- Shov.r supporting calculations for NonControlling interest and Retained Earnings at Dec. 31, 2019