1. (X) Inc. purchased 80% of the outstanding voting shares of (Y) for $360,000 on July 1, 2017. On that date, (Y) had common shares and retained earnings worth $180,000 and $90,000, respectively. The equipment had a remaining useful life of 5 years from the date of acquisition. Y's bonds mature on July 1, 2027. Both companies use straight line amortization, and no salvage value is assumed for assets. The trademark is assumed to have an indefinite useful life.

Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Y's fair market values on the date of acquisition are disclosed below:

	(X)	(Y)	(Y)
	(carrying value)	(carrying value)	(fair value)
Cash	$800,000	$245,000	$245,000
Accounts Receivable	$240,000	$40,000	$40,000
Inventory	$60,000	$45,000	$50,000
Equipment (net)	$900,000	$80,000	$72,000
Trademark		$90,000	$193,000
Total Assets	$2,000,000	$500,000
Current Liabilities	$200,000	$160,000	$160,000
Bonds Payable	$260,000	$70,000	$40,000
Common Shares	$900,000	$180,000
Retained Earnings	$640,000	$90,000
Total Liabilities and Equity	$2,000,000	$500,000

The following are the financial statements for both companies for the fiscal year ended June 30, 2020:

Income Statements:

	(X)	(Y)
Sales	$640,000	$240,000
Investment Revenue	$8,480
Less: Expenses:
Cost of Goods Sold	$300,000	$160,000
Depreciation	$81,000	$34,000
Interest Expense	$34,000	$26,000
Other Expenses	$5,000	$8,000
Net Income	$228,480	$12,000

Retained Earnings Statements

	(X)	(Y)
Balance, July 1, 2019	$960,560	$48,000
Net Income	$228280	$12,000
Dividends	$20,000	$2,000
Balance, June 30, 2020	$1,169,040	$58,000

Balance Sheets

	(X)	(y)
Cash	$1,200,000	$365,000
Accounts Receivable	$270,000	$55,000
Investment in (Y)	$319,040
Inventory	$70,000	$70,000
Equipment (net)	$820,000	$65,000
Trademark		$85,000
Total Assets	$2,679,040	$640,000
Current Liabilities	$350,000	$332,000
Bonds Payable	$260,000	$70,000
Common Shares	$900,000	$180,000
Retained Earnings	$1,169,040	$58,000
Total Liabilities and Equity	$2,679,040	$640,000

An impairment test conducted in September 2018 on (X) 's goodwill resulted in an impairment loss of $10,000 being recorded. Both companies use a FIFO system, and (Y) 's entire inventory on the date of acquisition was sold during the following year. During 2020, (Y) Inc. borrowed $20,000 in cash from (X) Inc. interest free to finance its operations. (X) uses the Equity Method to account for its investment in (Y) Assume that the fair value enterprise (FVE) method applies.

Required: Calculate the following:

1. The value of Common Shares appearing on (X) 's consolidated balance sheet on June 30, 2020

2. The amount of Accounts Receivable appearing on (X) 's consolidated balance sheet as at June 30, 2020

3. The amount of Current Liabilities appearing on (X) 's consolidated balance sheet as at June 30, 2020

The net amount appearing on (X) 's consolidated balance sheet for Equipment as at June 30, 2020

5. The amount of goodwill appearing on (X) 's consolidated balance sheet as at June 30, 2020

6. What amount would appear as (X)'s investment in (Y) on its June 30, 2020 consolidated balance sheet?

7. The amount of non-controlling interest appearing on (X) 's consolidated balance sheet as at June 30, 2020

2. Windsor Inc. purchased a controlling interest in LaSalle Inc. on January 1, 2020. On that date, LaSalle Inc. had common shares and retained earnings worth $180,000 and $20,000, respectively. Goodwill is tested annually for impairment. At the date of acquisition, Brand Y's assets and liabilities were assessed for fair value as follows:

Inventory	$5,000 less than book value
Equipment	$30,000 less than book value
Patent	$24,000 greater than book value
Bonds Payable	$5,000 less than book value

The balance sheets of both companies, as at December 31, 2020 are disclosed below:

	Windsor Inc.	LaSalle Inc.
Cash	$200,000	$45,000
Accounts Receivable	$100,000	$40,000
Inventory	$80,000	$55,000
Equipment (net)	$220,000	$100,000
Patent		$60,000
Investment in Brand Y	$348,000
Total Assets	$948,000	$300,000
Current Liabilities	$480,000	$53,000
Bonds Payable	$270,000	$50,000
Common Shares	$100,000	$180,000
Retained Earnings	$98,000	$19,000
Total Liabilities and Equity	$948,000	$300,000

The net incomes for Windsor and LaSalle for the year ended December 31, 2020 were $1,000 and $50,000 respectively. Windsor did not declare any dividends during the year. However, LaSalle paid and declared $51,000 in dividends in 2020 to make up for several years in which the company had never declared any dividends.

An impairment test conducted on December 31, 2020 revealed that the Goodwill should actually have a value $2,000 lower than the amount calculated on the date of acquisition.

Both companies use a FIFO system, and Brand Y's inventory on the date of acquisition was sold during the year. Brand Y's equipment and patent have useful lives of 10 years and 6 years respectively from the date of acquisition. All bonds payable mature on January 1, 2025.

Windsor uses the Fair Value Enterprise Method to value the non-controlling interest in LaSalle on the acquisition date.

Prepare Windsor's consolidated balance sheet as at December 31, 2020, assuming that Windsor purchased 80% of LaSalle for $350,000 and accounts for its investment using the equity method.

3. (M) Inc. Inc. purchased 90% of the outstanding voting shares of (k) Inc. for $90,000 on January 1, 2019. On that date, (k) Inc. had common shares and retained earnings worth $30,000 and $20,000, respectively. The equipment had a remaining useful life of 10 years from the date of acquisition. (k)'s trademark is estimated to have a remaining life of 5 years from the date of acquisition. (k)'s bonds mature on January 1, 2039. The inventory was sold in the year following the acquisition. Both companies use straight line amortization, and no salvage value is assumed for assets. (M) Inc. and (k) Inc. declared and paid $12,000 and $4,000 in dividends, respectively during the year.

The balance sheets of both companies, as well as (k)'s fair values on the date of acquisition are shown below:

	(M) Inc.	(k) Inc	(k) Inc
	(carrying value)	(carrying value)	(fair value)
Cash	$400,000	$5,000	$5,000
Accounts Receivable	$240,000	$30,000	$30,000
Inventory	$60,000	$30,000	$50,000
Investment in (k) Inc.	$90,000
Equipment (net)	$160,000	$25,000	$20,000
Land		$20,000	$30,000
Trademark	$950,000	$120,000
Total Assets	$950,000	$120,000
Current Liabilities	$500,000	$50,000	$50,000
Common Shares	$200,000	$30,000
Retained Earnings	$130,000	$20,000
Bonds Payable	$120,000	$20,000	$30,000
Total Liabilities and Equity	$950,000	$120,000

The following are the financial statements for both companies for the fiscal year ended December 31, 2019:

Income Statements

Sales	$295,750	$125,000
Dividend income	$3,600
Less: Expenses:
Cost of Goods Sold	$200,000	$19,000
Depreciation	$10,000	$25,000
Interest Expense	$16,000	$36,000
Other Expenses	$5,000	$28,000
Gain on Sale of Land	$-	$(8,000)
Net Income	$68,350	$25,000

Retained Earnings Statements

Balance, January 1, 2019	$130,000	$20,000
Net Income	$68,350	$25,000
Dividends	$(12,000)	$(12,000)
Balance, December 31, 2019	$186,350	$41,000

Balance Sheets

	(M) Inc.	(k) Inc.
Cash	$190,950	$156,000
Accounts Receivable	$200,000	$150,000
Investment in (k) Inc.	$90,000
Inventory	$100,000	$30,000
Equipment (net)	$350,000	$25,000
Trademark		$10,000
Total Assets	$930,950	$371,000
Current Liabilities	$424,600	$280,000
Bonds Payable	$120,000	$20,000
Common Shares	$200,000	$30,000
Retained Earnings	$186,350	$41,000
Total Liabilities and Equity	$930,950	$371,000

Both companies use a FIFO system, and (k)'s entire inventory on during the following year. During 2019, (k) Inc. borrowed $20,000 to finance its operations. (M) uses the Cost Method to account for its investment in (k) Inc. Moreover, (k) sold all of its land during the year for $28,000. Goodwill impairment for 2019 was determined to be $7,000.

(M) has chosen to value the non-controlling interest in (k) on the acquisition date at the fair value of the subsidiary's identifiable net assets (identifiable net assets method).

Required

2. Prepare (M)'s consolidated income statement for the year ended December 31, 2019 and show the allocation of the consolidated net income between the controlling and non-controlling interests.
4. Prepare (M)'s statement of consolidated retained earnings as at December 31, 2019
6. Calculate the balance of goodwill as of December 31, 2019
8. What is the balance of Non-Controlling Interest in the consolidated Balance sheet as of December 31, 2019.

4. Several years ago, (A) Inc. acquired an 80% interest in (B) Co. The book values of (B)'s asset and liability accounts at that time were considered to be equal to their fair values. (A)'s acquisition value corresponded to the underlying book value of (B) so that no allocations or goodwill resulted from the transfer.

The following selected account balances were from the individual financial records of these two companies as of December 31, 2021:

	(A) Inc.	(B) Co.
Sales	$ 896,000	$504,000
Cost of goods sold	406,000	276,000
Operating expenses	210,000	147,000
Retained earnings, 1/1/21	1,036,000	252,000
Inventory	484,000	154,000
Buildings (net)	501,000	220,000
Investment income	not given	not given

(A) sold a building to (B) on January 1, 2020 for $112,000, although the book value of this asset was only $70,000 on that date. The building had a five-year remaining useful life and was to be depreciated using the straight-line method with no salvage value.

Required:

For the consolidated financial statements for 2021, determine the balances that would appear for the following accounts: (i) Buildings (net); (ii) Operating expenses; and (iii) Net income attributable to the noncontrolling interest.

provide notes for explanation of each figure derived in every question

Answer rating: 100% (QA)

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