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Help Challenge Problem: Parent Ltd. purchased 80% of Sub's voting stock on January 1, Year 2 at cost of $260,000. On that date, the Sub's ordinary shares totaled $120,000 and retained earnings were $140,000. On January 1, the book values of the identifiable net assets were equal to their fair values except for the following. The Sub's equipment had a useful life of 6 years on the date of acquisition. The bonds payable mature on December 31, Year 3. Both the bonds and equipment are amortized using the straight-line method. 1. Accounts receivable's book value was overvalued by $25,000. 2. Equipment's book value was undervalued by $45,000. 3. Bond payable's book value was undervalued by $32,000 The annual financial statements of Parent Ltd. and Sub Ltd. for the year ended December 31, Year 5 were as follows: Parent Ltd. Sub Ltd. $ 450,100 $ 265,400 52,300 12,300 502,400 277,700 345,300 174,500 32,400 31,300 Sales revenue Other income Total revenues Cost of goods sold Depreciation expense General and administration expenses Interest expense Income tax expense Total expenses Net income 46,000 19,000 12,400 10,500 53,200 23,600 489,300 258,900 $13,100 $18.800 Additional information: 1. Annual impairment tests of goodwill resulted in losses of $8,000 in year 3 and $3,000 in Year 5. 2. During year 4. Sub sold $80,000 of inventory to its parent, Half of these sales have not been resold and remained on the books of the parent as inventory at year-end. The Sub's mark up on sales to its parent was 40%. 3. During year 5, both the parent and sub declared and issued dividends. The parent reported $25,000 and the subsidiary reported $16,000 in dividends. 4. During year 5, the parent sold $100,000 of inventory to the Sub. One quarter of these sales have not been resold and remained on the books of the subsidiary as inventory at year end. The parent's mark up on sales was 30%. The subsidiary owned $21,000 to its parent at year end for inventory purchases on account 5. On August 1, Year 5, Sub borrowed $60,000 from Parent. The two-year note had interest rate of 8%. Both the principal and interest were payable on maturity 6. On April 1, Year 5, the Sub sold equipment to the parent for $71,000. The book value of the equipment in the Sub's records at date of sale was $78,000. The remaining useful life of the equipment on the date of sale was 5 years 7. Parent uses the cost method 8. Assume a 30% corporate tax rate. Required: Required: 1. Prepare the following schedules - show all your calculations preferably using the alphabet to show where you got your figures from (a) Prepare the calculation and allocation of acquisition differential schedule (b) Prepare the acquisition differential amortization and goodwill impairment schedule (c) Prepare the intercompany transactions, unrealized profits on intercompany transactions and deferred taxes schedules (d) Calculate consolidated net income with income attributed to parent and non-controlling interests. (e) Prepare the consolidated income statement in good form Help Challenge Problem: Parent Ltd. purchased 80% of Sub's voting stock on January 1, Year 2 at cost of $260,000. On that date, the Sub's ordinary shares totaled $120,000 and retained earnings were $140,000. On January 1, the book values of the identifiable net assets were equal to their fair values except for the following. The Sub's equipment had a useful life of 6 years on the date of acquisition. The bonds payable mature on December 31, Year 3. Both the bonds and equipment are amortized using the straight-line method. 1. Accounts receivable's book value was overvalued by $25,000. 2. Equipment's book value was undervalued by $45,000. 3. Bond payable's book value was undervalued by $32,000 The annual financial statements of Parent Ltd. and Sub Ltd. for the year ended December 31, Year 5 were as follows: Parent Ltd. Sub Ltd. $ 450,100 $ 265,400 52,300 12,300 502,400 277,700 345,300 174,500 32,400 31,300 Sales revenue Other income Total revenues Cost of goods sold Depreciation expense General and administration expenses Interest expense Income tax expense Total expenses Net income 46,000 19,000 12,400 10,500 53,200 23,600 489,300 258,900 $13,100 $18.800 Additional information: 1. Annual impairment tests of goodwill resulted in losses of $8,000 in year 3 and $3,000 in Year 5. 2. During year 4. Sub sold $80,000 of inventory to its parent, Half of these sales have not been resold and remained on the books of the parent as inventory at year-end. The Sub's mark up on sales to its parent was 40%. 3. During year 5, both the parent and sub declared and issued dividends. The parent reported $25,000 and the subsidiary reported $16,000 in dividends. 4. During year 5, the parent sold $100,000 of inventory to the Sub. One quarter of these sales have not been resold and remained on the books of the subsidiary as inventory at year end. The parent's mark up on sales was 30%. The subsidiary owned $21,000 to its parent at year end for inventory purchases on account 5. On August 1, Year 5, Sub borrowed $60,000 from Parent. The two-year note had interest rate of 8%. Both the principal and interest were payable on maturity 6. On April 1, Year 5, the Sub sold equipment to the parent for $71,000. The book value of the equipment in the Sub's records at date of sale was $78,000. The remaining useful life of the equipment on the date of sale was 5 years 7. Parent uses the cost method 8. Assume a 30% corporate tax rate. Required: Required: 1. Prepare the following schedules - show all your calculations preferably using the alphabet to show where you got your figures from (a) Prepare the calculation and allocation of acquisition differential schedule (b) Prepare the acquisition differential amortization and goodwill impairment schedule (c) Prepare the intercompany transactions, unrealized profits on intercompany transactions and deferred taxes schedules (d) Calculate consolidated net income with income attributed to parent and non-controlling interests. (e) Prepare the consolidated income statement in good form