On January 1, 20X2, Porter Inc. purchased 80% of the outstanding voting shares of Sloan Ltd. for $ 3,000,000 in cash. On this date, Sloan had common shares outstanding in the amount of $ 2,200,000 and retained earnings of $ 1,100,000. The identifiable assets and liabilities of Sloan had fair values that were equal to their carrying values except for the following: a) Capital assets (net) had a fair value $ 200,000 greater than its carrying value. The remaining useful life on January 1, 20X2, was 20 years with no anticipated residual value. b) Accounts receivable had a fair value $ 75,000 less than carrying value. c) Long-term liabilities had a fair value $ 62,500 less than carrying value. These liabilities mature on June 30, 20X10. It is the policy of Porter to test all goodwill balances for impairment on an annual basis. To date, there has been no impairment in goodwill. Both Porter and Sloan use the straight-line method for depreciation. Porter Inc. is a public company. Additional Information 1. Between January 1, 20X2, and December 31, 20X4, Sloan earned $ 345,000 and paid dividends of $ 115,000. 2. On January 1, 20X4, Sloan sold a patent to Porter for $ 165,000. On this date, the patent had a carrying value on the books of Sloan of $ 185,000, and a remaining useful life of five years. 3. On September 1, 20X4, Porter sold land to Sloan for $ 103,000. The land had a carrying value on the books of Porter of $ 82,000. Sloan still owned this land on December 31, 20X5. 4. For the year ended December 31, 20X5, the statements of comprehensive income revealed the following:
Porter records its investment in Sloan using the cost method and includes dividend income from Sloan in its total revenues. 5. Porter and Sloan paid dividends of $ 125,000 and $ 98,000 respectively in 20X5. 6. Sloan issued no common shares subsequent to January 1, 20X2. Selected statement of financial position accounts for the two companies at December 31, 20X5, were:
7. During 20X5, Porter’s merchandise sales to Sloan were $ 150,000. The unrealized profits in Sloan’s inventory on January 1 and December 31, 20X5, were $ 14,000 and $ 10,000, respectively. At December 31, 20X5, Sloan still owed Porter $ 5,000 for merchandise purchases. 8. During 20X5, Sloan’s merchandise sales to Porter were $ 55,000. The unrealized profits in Porter’s inventory on January 1 and December 31, 20X5, were $ 1,500 and $ 2,500 respectively. At December 31, 20X5, Porter still owed Sloan $ 2,000 for merchandise purchases.
Required 1. Compute the balances that would appear in the consolidated statement of financial position of Porter and Sloan as at December 31, 20X5, for the following: a. Patent (net) b. Non-controlling interest c. Retained earnings 2. Porter has decided not to prepare consolidated financial statements and will report its investment in Sloan by the equity method. Calculate the investment income that would be disclosed in the statement of comprehensive income of Porter for the year ended December 31,20X5.