The following financial statements were prepared on December 31, Year 6:

Prancer Inc. Sendry Inc.

Cash & Short-Term Securities $ 390,000 $ 190,000 Accounts Receivable 290,000 -

Inventory 2,450,000 510,000

Property, plant & equipment 2,610,000 3,190,000

Investment in Sendry Inc. at cost 3,300,000 -

Total Assets $9,040,000 $3,890,000

Current Liabilities $ 737,000 $ 543,000

Common Shares 3,750,000 2,050,000

Retained Earnings 4,553,000 1,297,000

Total Liabilities and Equity $9,040,000 $3,890,000

Prancer Inc. Sendry Inc.

Sales $4,300,000 $1,225,000 Other Income 150,000 225,000

Gain on Sale of Land 150,000

Dividend income 232,000 -

4,832,000 1,450,000

Cost of sales 2,590,000 490,000

Amortization expenses 215,000 49,000

Miscellaneous expenses 300,000 30,000

Administrative expense 89,000 19,000

Income tax expense 295,000 165,000

Net Income $1,343,000 $ 697,000

Balance, January 1 $3,800,000 $ 890,000

Net Income 1,343,000 697,000

5,143,000 1,587,000

Dividends 590,000 290,000

Balance, December 31 $4,553,000 $1,297,000

Additional Information:

• Prancer purchased 80% of the outstanding voting shares of Sendry for $3,300,000 on January 1, Year 2, at which time Sendrys retained earnings were $445,000, and common shares were $2,050,000. The fair values of Sendrys net asset were equal to their fair value, except for the following:
  • Inventory = fair value was $325,000 greater than book value
  • Equipment = fair value was $560,000 greater than book value - equipment had a remaining useful life eight years

• During Year 3, a goodwill impairment loss of $79,000 was recognized, and an impairment test conducted as at December 31, Year 6, indicated that a further loss of $31,000 had occurred.

• During Year 6, inventory sales from Sendry to Prancer were $1,000,000. At year end, Prancers inventories contained merchandise purchased from Sendry for $500,000. Opening inventory for Prancer contained $250,000 of merchandise purchased from Sendry. A gross margin of 40% is recognized on its intercompany sales.

• During Year 6, Prancer sold a parcel of land to Sendry for $750,000. Prancer recorded a gain of $150,000 before taxes.

• Sendry paid out $290,000 in dividends and Prancer recorded $232,000 ($290,000 * 80%) of dividend revenue in year 6. Any impairment losses are grouped with administrative expenses.

• Sendry paid $10,000 during the year to Prancer for consulting services. (Sendry has recorded this amount in Administrative Expenses)

• Assume a 40% tax rate.

Required:

1. Calculate the amount of the acquisition differential and the amount of goodwill arising from this combination.
2. Calculate:
   1. Consolidated Net Income attributable to Prancers Shareholders
   2. Consolidated Retained Earnings for December 31, Year 6
   3. NCI for December 31, Year 6
3. Prepare the Consolidated Income Statement for the year ended December 31, Year 6.