Smiles Ltd purchased 100 of the shares of Degrees Ltd on 1 July 2019 for $820,000 ( cumm div ) At that date the financial statements of Degrees Ltd showed the following amounts Share Capital $600,000 Retained Earnings 125,000 General Reserve 30,000 Dividend Payable 20,000 On 1 July 2019 all of the identifiable assets of Degrees Ltd were recorded at fair value except for the following Carrying Amount Fair Value Inventory $50,000 60,000 Machinery (cost $215,000) 150,000 220,000 On 1 July 2019 Degrees Ltd had a contingent liability of $50,000 relating to a lawsuit for damaged goods that had not been recorded in the accounts This lawsuit was settled in November 2019, and Degrees Ltd was required to pay $44,000 in damages All of the above inventory was sold by December 2019 The machinery had a further 4 year useful life Any valuation adjustments are made on consolidation Additional information i) During the year, Smiles Ltd sold inventory to Degrees Ltd for $10,000, at a mark up of 25 on cost At year end, Degrees Ltd still had 25 of this inventory on hand ii) On 1 January 2020, Degrees Ltd sold Smiles Ltd an item of plant for $23,000 This plant originally cost Degrees Ltd $25,000 and was written down to $16,000 just before the intragroup sale Smiles Ltd depreciates the plant at the rate of 25 p a on cost iii) During the year ended 30 June, 2020 Smiles Ltd charged Degrees Ltd management fees of $12,000 On 30 June 2020, Degrees Ltd had not paid these fees iv) On 30 June 2020, the balance in the Retained Earnings account for Smiles Ltd was $644,350CR and for Degrees Ltd it was $167,400CR v) On 30 June 2020, Degrees Ltd declared a dividend of $25,000 This dividend was paid in August 2020 vi) The income tax rate is 30 Requirements a) Prepare the acquisition analysis on 1 July 2019 b) Prepare the journal entries necessary to prepare consolidated financial statements as of 30 June 2020 Show all dates and narrations c) Calculate the balance in the Consolidated Retained Earnings account as of 30 June 2020 Show details descriptions and amounts

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Smiles Ltd purchased 100% of the shares of Degrees Ltd on 1 July 2019 for $820,000 ( cumm div ). At that date the financial

Smiles Ltd purchased 100% of the shares of Degrees Ltd on 1 July 2019 for $820,000 (cumm div). At that date the financial statements of Degrees Ltd showed the following amounts:

Share Capital	$600,000
Retained Earnings	125,000
General Reserve	30,000
Dividend Payable	20,000

On 1 July 2019 all of the identifiable assets of Degrees Ltd were recorded at fair value except for the following:

Carrying Amount	Fair Value
Inventory	$50,000	60,000
Machinery (cost $215,000)	150,000	220,000

On 1 July 2019 Degrees Ltd had a contingent liability of $50,000 relating to a lawsuit for damaged goods that had not been recorded in the accounts. This lawsuit was settled in November 2019, and Degrees Ltd was required to pay $44,000 in damages. All of the above inventory was sold by December 2019. The machinery had a further 4-year useful life. Any valuation adjustments are made on consolidation.

Additional information:

i)	During the year, Smiles Ltd sold inventory to Degrees Ltd for $10,000, at a mark-up of 25% on cost. At year end, Degrees Ltd still had 25% of this inventory on hand.
ii)	On 1 January 2020, Degrees Ltd sold Smiles Ltd an item of plant for $23,000. This plant originally cost Degrees Ltd $25,000 and was written down to $16,000 just before the intragroup sale. Smiles Ltd depreciates the plant at the rate of 25% p.a. on cost.
iii)	During the year ended 30 June, 2020 Smiles Ltd charged Degrees Ltd management fees of $12,000. On 30 June 2020, Degrees Ltd had not paid these fees.
iv)	On 30 June 2020, the balance in the Retained Earnings account for Smiles Ltd was $644,350CR and for Degrees Ltd it was $167,400CR.
v)	On 30 June 2020, Degrees Ltd declared a dividend of $25,000. This dividend was paid in August 2020.
vi)	The income tax rate is 30%.

Requirements:

a)	Prepare the acquisition analysis on 1 July 2019.
b)	Prepare the journal entries necessary to prepare consolidated financial statements as of 30 June 2020. Show all dates and narrations.
c)	Calculate the balance in the Consolidated Retained Earnings account as of 30 June 2020. Show details – descriptions and amounts.