board My courses My Media On January 1, Year 3, Big Company acquired 70% of the...

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board My courses My Media On January 1, Year 3, Big Company acquired 70% of the ordinary shares of Little Company for $1,500,000. On January 1, Year 3, the assets and liabilities of Little Company had the following book and fair values: Cash Accounts receivable Inventory Equipment, net Accounts payable Long-term debt Ordinary shares Retained earnings Book Value Time left 2:57:13 150,000 $ 150,000 hod/quiz/attempt.php?attempt 10 300,000 300,000 oard My courses My Media 450,000 500,000 1,500,000 1,700.000 2.400,000 $ 2.650.000 $ 250,000 $ 250,000 500,000 500,000 600,000 1,050,000 $ 2,400,000 On January 1, Year 3, the equipment had a remaining life of 10 years. During Year 3, the inventory on hand January 1, Year 3, was all sold. Big uses the Entity Theory and the cost method to accour investment in Little. On December 31, Year 6, the Income and Balance Sheets for both companies were as follows: Balance Sheets December 31, Year 6 Big Time left 2:57:06 Quiz Ins Cash On January 1, Year 3, the equipment had a remaining life of 10 years. During Year 3, the inventory on hand January 1, Year 3, was all sold. Big uses the Entity Theory and the cost method to account for its investment in Little. On December 31, Year 6, the Income Statements and Balance Sheets for both companies were as follows: Accounts payable Long-term debt Ordinary shares Cash Accounts receivable Inventory Equipment, net Investment in Little board My cour Little $ 350,000 $ 200,000 Accounts receivable 700,000 450,000 Inventory 1,250,000 650,000 C Equipment, net 2,000,000 1,800,000 Investment in Little 1,500,000 5.800.000 S 3.100.000 $ 500,000 $ 350,000 1,500,000 600,000 1,800,000 600,000 Retained earnings 2,000,000 1.550,000 $ 5.800.000 $ 3.100.000 Income Statements Balance Sheets December 31, Year 6 Big $ 350,000 Little $ 20 700,000 45 1,250,000 Sales 6 2,000,000 1, Cost of goods sold Gross profit 1,500,000 5,800,000 Selling & admin. expenses Amortization expense Interest expense Year Ended December 31, Year 6 Big Little $ 7,500,000 $ 5,000,000 5,250,000 3,500,000 2,250,000 1,500,000 1,200,000 900,000 200,000 150,000 150,000 50,000 Income Statements Year Ended December 31, Year 6 Big Time left 2:57:03 Sales $ 7,500,000 Quishboard My courses My Media Cost of goods sold 5,250,000 3,500,000 Gross profit 2,250,000 1,500,000 In Selling & admin, expenses 1,200,000 900,000 1. During Year 5 and Year 6, Little sold inventory to Big with a 30% markup on cost as follows: Amortization expense, 200,000 150,00d Time left 2:57:01 Interest expense 150,000 50,000 Quiz Amount maining in Big inventory on December 31 Income before tax 700,000 400,000 g accounts payable owed to Lande on December 31 991.000 $30,000 $104,000 $30,000 Income tax 280,000 160,000 Net income $ 420,000 240,000 2. Big tested goodwill annually for impairment with the following results: Ins Additional information: Year 3 and Year 4 impairment $0 Year 5 1. During Year 5 and Year 6, Little sold inventory to Big with a 30% $20,000 Year 6 $30,000 markup on cost as follows: Year 5 Year 6 Intercompany sales - Little to Big Amount remaining in Big inventory on December 31 $350,000 $91,000 Big accounts payable owed to Little on December 31 $20,000 $400,000 $104,000 $30,000 2. Big tested goodwill annually for impairment with the following results: Year 3 and Year 4 impairment $0 Year 5 $20,000 Year 6 $30,000 3. On January 1, Year 5, Big sold equipment to Little for $100,000 3. On January 1, Year 5, Big sold equipment to Little for $100,000 cash. It had a book value of $70,000, an original cost of $150,000, and a remaining life of 5 years with no residual value. 4. There were no dividends paid. Assume a 40% tax rate for both companies for all years. Required: a. Calculate goodwill. (2 marks) b. Prepare an acquisition differential amortization and goodwill impairment schedule for the period January 1, Year 3, to December 31, Year 6. (3 marks) board My courses My Media On January 1, Year 3, Big Company acquired 70% of the ordinary shares of Little Company for $1,500,000. On January 1, Year 3, the assets and liabilities of Little Company had the following book and fair values: Cash Accounts receivable Inventory Equipment, net Accounts payable Long-term debt Ordinary shares Retained earnings Book Value Time left 2:57:13 150,000 $ 150,000 hod/quiz/attempt.php?attempt 10 300,000 300,000 oard My courses My Media 450,000 500,000 1,500,000 1,700.000 2.400,000 $ 2.650.000 $ 250,000 $ 250,000 500,000 500,000 600,000 1,050,000 $ 2,400,000 On January 1, Year 3, the equipment had a remaining life of 10 years. During Year 3, the inventory on hand January 1, Year 3, was all sold. Big uses the Entity Theory and the cost method to accour investment in Little. On December 31, Year 6, the Income and Balance Sheets for both companies were as follows: Balance Sheets December 31, Year 6 Big Time left 2:57:06 Quiz Ins Cash On January 1, Year 3, the equipment had a remaining life of 10 years. During Year 3, the inventory on hand January 1, Year 3, was all sold. Big uses the Entity Theory and the cost method to account for its investment in Little. On December 31, Year 6, the Income Statements and Balance Sheets for both companies were as follows: Accounts payable Long-term debt Ordinary shares Cash Accounts receivable Inventory Equipment, net Investment in Little board My cour Little $ 350,000 $ 200,000 Accounts receivable 700,000 450,000 Inventory 1,250,000 650,000 C Equipment, net 2,000,000 1,800,000 Investment in Little 1,500,000 5.800.000 S 3.100.000 $ 500,000 $ 350,000 1,500,000 600,000 1,800,000 600,000 Retained earnings 2,000,000 1.550,000 $ 5.800.000 $ 3.100.000 Income Statements Balance Sheets December 31, Year 6 Big $ 350,000 Little $ 20 700,000 45 1,250,000 Sales 6 2,000,000 1, Cost of goods sold Gross profit 1,500,000 5,800,000 Selling & admin. expenses Amortization expense Interest expense Year Ended December 31, Year 6 Big Little $ 7,500,000 $ 5,000,000 5,250,000 3,500,000 2,250,000 1,500,000 1,200,000 900,000 200,000 150,000 150,000 50,000 Income Statements Year Ended December 31, Year 6 Big Time left 2:57:03 Sales $ 7,500,000 Quishboard My courses My Media Cost of goods sold 5,250,000 3,500,000 Gross profit 2,250,000 1,500,000 In Selling & admin, expenses 1,200,000 900,000 1. During Year 5 and Year 6, Little sold inventory to Big with a 30% markup on cost as follows: Amortization expense, 200,000 150,00d Time left 2:57:01 Interest expense 150,000 50,000 Quiz Amount maining in Big inventory on December 31 Income before tax 700,000 400,000 g accounts payable owed to Lande on December 31 991.000 $30,000 $104,000 $30,000 Income tax 280,000 160,000 Net income $ 420,000 240,000 2. Big tested goodwill annually for impairment with the following results: Ins Additional information: Year 3 and Year 4 impairment $0 Year 5 1. During Year 5 and Year 6, Little sold inventory to Big with a 30% $20,000 Year 6 $30,000 markup on cost as follows: Year 5 Year 6 Intercompany sales - Little to Big Amount remaining in Big inventory on December 31 $350,000 $91,000 Big accounts payable owed to Little on December 31 $20,000 $400,000 $104,000 $30,000 2. Big tested goodwill annually for impairment with the following results: Year 3 and Year 4 impairment $0 Year 5 $20,000 Year 6 $30,000 3. On January 1, Year 5, Big sold equipment to Little for $100,000 3. On January 1, Year 5, Big sold equipment to Little for $100,000 cash. It had a book value of $70,000, an original cost of $150,000, and a remaining life of 5 years with no residual value. 4. There were no dividends paid. Assume a 40% tax rate for both companies for all years. Required: a. Calculate goodwill. (2 marks) b. Prepare an acquisition differential amortization and goodwill impairment schedule for the period January 1, Year 3, to December 31, Year 6. (3 marks)