Aztec Corporation purchased 70% of the outstanding shares of Inca Limited on January 1, 20X2, at a cost of $84,000. Aztec has always used the cost method to account for its investments. On January 1, 20X2, Inca had common shares of $50,000 and retained earnings of $30,000, and fair values were equal to carrying value for all of its net assets except for inventory (fair value was $9,000 less than carrying value) and equipment (fair value was $24,000 greater than carrying value). The equipment had an estimated remaining life of six years on January 1, 20X2.

The following are the separate-entity financial statements of Aztec and Inca at December 31, 20X5:

Additional Information

1. During 20X5, Inca made a cash payment of $2,000 per month to Aztec for management fees, which is included in Inca€™s €œother expenses.€

2. During 20X5, Aztec made intercompany sales of $100,000 to Inca. The December 31, 20X5, inventory of Inca contained goods purchased from Aztec amounting to $30,000. These sales had a gross profit of 35%.

3. On April 1, 20X5, Aztec acquired land from Inca for $40,000. This land had been recorded on Inca€™s books at a net carrying value of $20,000. Aztec paid for the land by signing a $40,000 note payable to Inca, bearing interest at 8%. Interest for 20X5 was paid by Aztec in cash on December 31, 20X5. This land was still being held by Aztec on December 31, 20X5.

4. The fair value of the consolidated goodwill remained unchanged from January 1, 20X2, to July 1, 20X5. On July 1, 20X5, a valuation was performed, indicating that the fair value of consolidated goodwill was $3,500.

Required

1. Prepare a calculation of goodwill and any unamortized fair value adjustment as at December 31, 20X5.

2. Prepare Aztec€™s consolidated SCI for the year ended December 31, 20X5.

3. Calculate the following balances that would appear on Aztec€™s consolidated statement of financial position as at December 31, 20X5:

i. inventory;

ii. land;

iii. notes payable;

iv. non-controlling interest; and

v. common shares.

Transcribed Image Text:

Statements of Financlal Position December 31, 20X5 Aztec Inca $ 10,000 %24 Cash Accounts receivable 40,000 30,000 40,000 Note receivable 44,000 Inventory 66,000 Capital assets (net) 220,000 76,000 Land 150,000 30,000 Investment in Inca 80,000 Total $556,000 $230,000 $ 60,000 Accounts payable $140,000 Notes payable 40,000 Common shares 150,000 50,000 Retained earnings 1 20,000 $230,000 226,000 $556,000 Total Statements of Comprehenslve Income Year Ended December 31, 20X5 Aztec Inca $798,000 $300,000 Sales Management fee revenue 24,000 Investment income 14,000 3,600 Gain on sale of land 20,000 836,000 323,600 Cost of sales 480,000 200,000 Amortization expense 40,000 12,000 Interest expense 10,000 Other expenses 106,000 31,600 Income tax expense 80,000 32,000 716,000 $120,000 275,600 Net incorme and comprehensive income $ 48,000 Statements of Changes In Equlty-Retalned Earnings Section Year Ended December 31, 20X5 $ 106,000 Retained earnings, beginning of year $ 92,000 Net income 120,000 48,000 Dividends paid Retained earnings, end of year (20,000) $226,000 $ 120,000