Question
The X Company purchased 80% of the outstanding voting shares of the Y Company for $3,300,000 on July 1 st . 2018, at which time
The X Company purchased 80% of the outstanding voting shares of the Y Company for $3,300,000 on July 1st. 2018, at which time Ys retained earnings were $445,000 , accumulated depreciation $69,000 and common stock $2,050,000.
Below is the financial statements for the year ending December 31st.2022:-
BALANCE SHEETS
As at December 31st.2022
XY
Cash$ 390,000.$ 190,000
Accounts receivable. 290,0000.
Inventory..2,450,000. 510,000
Plant and equipment3,450,000.3,590,000
Accumulated depreciation( 840,000).( 400,000)
Investment in the Y Company at cost.3,300,000
TOTAL ASSETS$9,040,000..$3,890,000
Liabilities.$ 737,000$ 543,000
Common Stock 3,750,000..2,050,000
Retained Earnings 4,553,000...1,297,000
TOTAL LIABILITIES & OWNERS EQUITY$9,040,000$3,890,000
INCOME STATEMENTS
For the Year ending December 31st.2022
X...Y
Sales.$4,,450,000..$1,450,000
Dividend income 232,000
$ 4,682,000$1,450,000
Cost of sales. 2,590,000.. 490,000
Miscellaneous expenses.. 365,000.. 79,000
Administrative expenses... 89,000. 19,000
Income tax expense. 295,000. 165,000
3,339,000 735,000
NET INCOME..$1,343,000.$ 697,000
RETAINED EARNINGS STATEMENTS
XY
Balance, January 1, 2022.$3,800,000..$ 890,000
Net Income..1,343,000 697,000
5,143,0001,587,000
Dividends 590,000290,000
Retained Earnings, December 31st.2022.$4,553,000.$1,297,000
Additional Information:-
i. The inventory was undervalued by an amount which was equal to 20% of the acquisition differential and equipment by 40% with a remaining life of 8 years.
ii. During 2019, a goodwill impairment loss of $79,000 was recognized, and an impairment test conducted as at December 31st. 2022 indicated a further impairment loss of $29,000 had occurred.
iii. Amortization expense is grouped with cost of goods sold and impairment losses are grouped with administrative expenses.
iv. Y owes X $84,000 on December 31st.2022.
Required:-
I. Calculate:-
a. Consolidated goodwill at date of acquisition(5 marks)
b. Prepare an amortization table for year ending December 31st.2022(3marks)
ii. Prepare:-
a. Consolidated Net Income Statement for year ending December 31st.2022(4 marks)
b. Consolidated Retained Earnings at January 1st.2022(5 marks)
c. Consolidated Retained Earnings at December 31st.2022((3 marks)
iii. Compute the following balances for the consolidated income statement for year ending December 31st.2022:-
a. Cost of goods sold(1.5 marks)
b. Administrative expenses(1.5 marks)
c. Non-controlling interest for the income statement(1 mark)
iv. Compute the following balances for the consolidated balance sheet as at December 31st.2022:-
a. Plant & Equipment(2 marks)
b. Accumulated Depreciation(2 marks)
c. Non-controlling interest for the balance sheet(4 marks)
v. If X had used the Identifiable Net Asset Method to prepare the statements, what would be the amount of the reported goodwill and Non-Controlling interest on the consolidated balance sheet as at December 31st.2022(3 marks).
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