Foxx Corp. purchased 75% of the outstanding shares of Rabb Ltd. on January 1, Year 3, at a cost of $117,000. Non-controlling interest was valued at $35,000 by an independent business valuator at the date of acquisition. On that date, Rabb had common shares of $50,000 and retained earnings of $30,000. Fair values were equal to carrying amounts for all the net assets except the following:
The equipment had an estimated remaining useful life of 6 years on January 1, Year 3, and the software was to be amortized over 10 years. Foxx uses the cost method to account for its investment. The testing for impairment at December 31, Year 6, yielded the following fair values:
Software ...... $ 8,000
Goodwill ...... 20,000
The impairment loss on these assets occurred entirely in Year 6. Amortization expense is grouped with administrative expenses, and impairment losses are grouped with miscellaneous expenses. The parent's share of the goodwill noted above is $15,000.
The following are the financial statements of Foxx Corp. and its subsidiary Rabb Ltd. as at December 31, Year 6:
Additional Information
The notes payable are intercompany.
(a) Prepare the Year 6 consolidated financial statements.
(b) Calculate goodwill impairment loss and non-controlling interest on the con solidated income statement for the year ended December 31, Year 6, under parent company extension theory.
(c) If Foxx used parent company extension theory rather than entity theory, how would this affect the debt-to-equity ratio at the end of Year 6?

  • CreatedJune 08, 2015
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