Question
The following financial statements were prepared on December 31, Year 6. BALANCE SHEET Pearl Silver Cash $ 500,000 $ 300,000 Accounts receivable 400,000 Inventory 3,000,000
The following financial statements were prepared on December 31, Year 6.
| BALANCE SHEET | |||||||
| Pearl | Silver | ||||||
| Cash | $ | 500,000 | $ | 300,000 | |||
| Accounts receivable | 400,000 | ||||||
| Inventory | 3,000,000 | 620,000 | |||||
| Plant and equipment | 4,000,000 | 4,690,000 | |||||
| Accumulated depreciation | (950,000 | ) | (510,000 | ) | |||
| Investment in Silver Company (at cost) | 4,400,000 | ||||||
| $ | 11,350,000 | $ | 5,100,000 | ||||
| Liabilities | $ | 550,000 | $ | 840,000 | |||
| Common shares | 4,850,000 | 2,600,000 | |||||
| Retained earnings | 5,950,000 | 1,660,000 | |||||
| $ | 11,350,000 | $ | 5,100,000 | ||||
| INCOME STATEMENT | |||||
| Sales | $ | 5,000,000 | $ | 2,000,000 | |
| Dividend income | 320,000 | ||||
| 5,320,000 | 2,000,000 | ||||
| Cost of sales | 2,700,000 | 600,000 | |||
| Miscellaneous expenses | 420,000 | 90,000 | |||
| Administrative expense | 100,000 | 30,000 | |||
| Income tax expense | 350,000 | 220,000 | |||
| (3,570,000) | (940,000) | ||||
| Net income | $ | 1,750,000 | $ | 1,060,000 | |
| RETAINED EARNINGS STATEMENT | |||||
| Balance, January 1 | $ | 4,900,000 | $ | 1,000,000 | |
| Net income | 1,750,000 | 1,060,000 | |||
| 6,650,000 | 2,060,000 | ||||
| Dividends | (700,000) | (400,000) | |||
| Balance, December 31 | $ | 5,950,000 | $ | 1,660,000 | |
Additional Information
Pearl purchased 80% of the outstanding voting shares of Silver for $4,400,000 on July 1, Year 2, at which time Silver's retained earnings were $500,000, and accumulated depreciation was $80,000. The acquisition differential on this date was allocated as follows:
- 20% to undervalued inventory
- 40% to equipmentremaining useful life 8 years
- Balance to goodwill
During Year 3, a goodwill impairment loss of $90,000 was recognized, and an impairment test conducted as at December 31, Year 6, indicated that a further loss of $40,000 had occurred.
Amortization expense is grouped with cost of goods sold and impairment losses are grouped with administrative expenses.
Silver owes Pearl $95,000 on December 31, Year 6.
Required:
(a) Prepare consolidated financial statements on December 31, Year 6. (Input all amounts as positive values except accumulated depreciation which should be indicated by minus sign. Omit $ sign in your response.)
| Pearl Company | ||
| Consolidated Retained Earnings Statement | ||
| For the Year Ended December 31, Year 6 | ||
| (Click to select) Balance Jan. 1 Balance Dec. 31 | $ | |
| (Click to select) Net loss Net income | ||
| (Click to select) Add: Dividends Less: Dividends | ||
| (Click to select) Balance Dec.31 Balance Jan. 1 | $ | |
(b) Calculate goodwill impairment loss and non-controlling interest on the consolidated income statement for the year ended December 31, Year 6, under the identifiable net assets method. (Omit $ sign in your response.)
| Goodwill impairment loss | $ |
| NCI - identifiable net assets method | |
(c) Calculate goodwill and non-controlling interest on the consolidated balance sheet at December 31, Year 6, under the identifiable net assets method. (Omit $ sign in your response.)
| Goodwill - identifiable net assets method | $ |
| NCI - identifiable net assets method | |
(d) Prepare the consolidated financial statements using the worksheet approach. (Input all amounts as positive values except accumulated depreciation which should be indicated by minus sign. All values in the "Entry" columns should be entered as positive values. For accounts where multiple adjusting entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Leave no cells blank - be certain to enter "0" wherever required. Omit $ sign in your response.)
| Consolidated Financial Statement Working Paper | |||||||||
| Pearl Company | |||||||||
| Consolidated Financial Statements | |||||||||
| December 31, year 6 | |||||||||
| Entries | |||||||||
| Pearl | Silver | Dr. | Cr. | Consolidated | |||||
| Income Statements - Year 6 | |||||||||
| Sales | $ | $ | $ | $ | $ | ||||
| Dividend income | |||||||||
| Cost of sales | |||||||||
| Miscellaneous expenses | |||||||||
| Administrative expense | |||||||||
| Income tax expense | |||||||||
| Total expenses | |||||||||
| Net income | $ | $ | $ | ||||||
| Attributable to: | |||||||||
| Pearl's Shareholders | $ | ||||||||
| Non-controlling interest | |||||||||
| $ | $ | $ | |||||||
| Retained Earnings Statements - Year 6 | |||||||||
| Balance, January 1 | $ | $ | $ | $ | |||||
| Net income | |||||||||
| Dividends | |||||||||
| Balance, December 31 | $ | $ | $ | $ | $ | ||||
| Statement of Financial Position - December 31, Year 6 | |||||||||
| Cash | $ | $ | $ | $ | $ | ||||
| Accounts receivable | |||||||||
| Inventory | |||||||||
| Plant and equipment | |||||||||
| Accumulated depreciation | |||||||||
| Investment in Silver Company | |||||||||
| Acquisition differen differenttial | |||||||||
| Goodwill | |||||||||
| $ | $ | $ | |||||||
| Liabilities | $ | $ | $ | ||||||
| Common shares | |||||||||
| Retained earnings | |||||||||
| Non-controlling interest | |||||||||
| $ | $ | $ | |||||||
| $ | $ |
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