The following are the balance sheets of Post and Sage corporations as at December 31, Year 3:

Statement of Financial position

December 31, Year 3

	Post	Sage
Land	175000	19000
Plant and Equipment	520000	65000
Accumulated Depreciation	-229400	-17000
Investment in Sage, at Cost	63000	0
Inventory	34000	27000
Notes Receivable	0	55000
Accounts Receivable	17200	9100
Cash	12200	12900
Total Assets	592000	171000
Common Shares	100000	50000
Retained Earnings	225000	81000
Notes Payable	55000	0
Accounts Payable	212000	40000
Total Liabilities and Equity	592000	171000

Statement of Profit. Year 3

	Post	Land
Sales	900000	240000
Management Revenue	26500	0
Interest Revenue	0	6800
Gain on Sale of Land	0	30000
Dividend Revenue	10500	0
Total Revenue	937000	276800
Cost of Goods Sold	40000	162000
Interest Expense	20000	0
Other Expenses	180000	74800
Income Tax Expense	80000	16000
Total Expenses	820000	252800
Profit	117000	24000

Additional information:

1. Post purchased 80 percent of the outstanding shares of Sage on January 1, Year 1, at a cost of $72,000 and has used the cost method to account for its investment. On that date, Sage had retained earnings of $ 15,000 and fair values were equal to carrying values for all its net assets except inventory (over valued by $12,000) and equipment (undervalued by $18,000). The equipment had an estimated life of five years.

2. During year 3, the following intercompany transactions took place :

(a) Sage made a payment of $26,500 to post for management fees, which was recorded under the category other expenses. (b) Sage made sales of $90,000 to Post. The percentage of profit on this sale is 25. The December 31, Year 3, inventory of Post contained goods purchased from Sage amounting to $28,000. (c) Post made sales of $125,000 to Sage. The percentage of profit on this sale is 30. The December 31, Year 3, inventory of Sage contained goods purchased from Post amounting to $18,000. (d) On January 1, Year 3 post borrowed $55,000 from sage and signed a note bearing interest at 10% per annum. The interest on this note was paid on December 31, Year 3. (e) During the year, Sage sold land to post and recorded a gain of $30,000 on the transaction. This land is being held by Post on December 31, Year 3. (f) Goodwill impairment loss was occurred in year 3 for $3000.

3. Both the companies pay income tax at 40 percent on their taxable incomes.

Required: 1.(a) Calculation of Goodwill:

Cost of _____%investment, January 1, Year 1

Implied value of 100% investment

Carrying amounts of Sage's net assets:

Ordinary shares Retained earnings Total shareholders' equity

Acquisition differentia

l Allocation: FV CA

Inventory Plant Balance - Goodwill

(b) Amortization Schedule:

	January	Amortization		December 31
	Year 1	Years 1 and 2	Year 3	Year 3
Inventory
Plant
Goodwill
Total

c) Inter-company revenues and expenses:

Management Fee Sales and Purchases Post Selling Sage Selling Interest

(d) Inter-company profits in inventory and Land

	Before Tax	40% Tax	After Tax
Land - Sage Selling
Ending Inventory - Sage Selling
Ending Inventory - Post Selling
Total

2. Calculation of consolidated net income :

	Amount	Amount
Profit of Post
Adjustments to the profits of Post
Adjusted profit of post
Profit of Sage
Adjustment to the profit of sage
Adjusted Profit of sage
Consolidated Profit

Atttributable to: Shareholders of Post Non - Controlling Interest

3. Prepare a consolidated income statements for post coporation for year 3