Question:

On January 1, 2012 Paris Inc. purchased 80% of the outstanding common stock of Torres Co. for $144,000. On that date, the fair value of the remaining 20% interest was $35,000 and Torres had Common Stock of $104,000 and Retained Earnings of $11,000. On the acquisition date all of Torres's assets and liabilities had fair values equal to their book values except:

Accounts Receivable which had a book value of $25,000 and a fair value of $20,000.

PP&E which had a book value of $40,000 and a fair value of $70,000.

Patents which were undervalued by $24,000.

Notes Payable which had a book value of $11,000 and a fair value of $16,000.

Both the PP&E and Patent are straight line depreciated or amortized over their expected remaining useful lives of 10 and 6 years respectively. Neither has any salvage value. Torres's Notes Payable had a remaining term of 5 years at the date of acquisition.

On January 1, 2013, Torres sold equipment with a book value of $40,000 to Paris for $60,000. Both companies use straight line depreciation and estimate the equipment has a remaining useful life of eight years with no salvage value.

Both companies routinely sell inventory to one another with a profit margin of 30% of the selling price. $22,000 of intercompany sales occurred in 2014, with $10,000 of the merchandise remaining in the ending inventory ofParis. $6,400 of the intercompany sales remained unpaid at the end of 2014. $16,000 of intercompany sales took place in 2015. The 2015 ending inventory ofTorresincluded $5,500 of intercompany goods, $2,560 of which had yet to be paid.

During 2015, Paris took a $2,000 impairment loss on the goodwill recognized as part of the acquisition of Torres.

Parent Sub Income Statement Sales 368,000 160,000 Cost of Goods Sold (192,000) (94,400) Gross Profit 176,000 65,600 Depreciation & Amort (9,600) (7,680) Expense Operating Expenses (104,000) (21,040) Interest Expense (4,800) (1,680) Total Expense (118,400) (30,400) Equity Income 24,430 Net Income 82,030 35,200 NC Income Controlling Income Statement of Retained Earnings Beg. Retained 211,440 88,000 Earnings Net Income 82,030 35,200 Dividends Declared (48,000) (16,000) Ending Retained 245,470 107,200 Earnings