Question

On January 1, 20X0, Mariachi Corporation acquired 70% of the outstanding shares of Sombrero Company for $ 85,000 cash. On that date, Sombrero Company had $ 35,000 of common shares outstanding and $ 25,000 of retained earnings. On January 1, 20X0, the carrying values of each of Sombrero Company’s identifiable assets and liabilities were equal to their fair value except for the following:


The equipment had a useful life of 10 years as at January 1, 20X0, and all inventory was sold during 20X0. The following are the separate entity financial statements for Mariachi and Sombrero at December 31, 20X5:
Statements of Financial Position
December 31, 20X5


Additional Information
1. On January 1, 20X2, Mariachi sold Sombrero a trademark with a net carrying value of $ 20,000 for cash consideration of $ 28,000. The trademark has an indefinite useful life. On July 1, 20X5, Sombrero sold the trademark to an unrelated company for cash consideration of $ 40,000.
2. Sombrero sells goods to Mariachi at 25% above cost. Total sales from Sombrero to Mariachi during 20X5 were $ 50,000, of which $ 20,000 remained in Mariachi’s inventory at year end. Mariachi still owed Sombrero $ 18,000 for this inventory at December 31, 20X5. In 20X4, total sales from Sombrero to Mariachi were $ 40,000, of which $ 10,000 remained in Mariachi’s inventory at year end.
3. Mariachi uses the cost method to account for its investment in Sombrero. Both companies pay income taxes at a rate of 40%, and have done so since 19X9. None of the transactions detailed above are considered capital gains for tax purposes. Ignore future taxes when calculating the purchase price discrepancy.
4. Each year, goodwill is evaluated to determine if there has been permanent impairment. To date there has been no impairment in value.

Required
1. Prepare a calculation for the purchase price discrepancy and goodwill as of January 1, 20X0.
2. Prepare a consolidated statement of income for the year ended December 31, 20X5.
3. What would the balance be for each of the following consolidated statement of financial position accounts as at December 31, 20X5?
a) Accounts receivable
b) Inventory
c) Equipment
d) Non-controllinginterest


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  • CreatedMarch 13, 2015
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