P Corporation owns 80% of the outstanding voting shares of S Corporation, having acquired its interest January
Question:
P Corporation owns 80% of the outstanding voting shares of S Corporation, having acquired its interest January 1, 20X3, for $100,000. At the time of the acquisition, S Corporation had a shareholders' equity totaling $50,000, made up of retained earnings of $30,000 and common shares of $20,000. The following accounts had fair values higher (or lower) than its carrying values:
Inventory fair value is $10,000 higher than carrying value.
Equipment fair value is $40,000 higher than carrying value.
Land fair value is $20,000 lower than carrying value.
The equipment had a remaining useful life at the time of acquisition of five years.
The company uses the entity approach to determine the amount of goodwill. P accounts for its investment in S using the cost method.
Statement of Comprehensive Income
Year Ended December 31, 20X6
(in thousands of $'s)
P S
Sales $600 $250
Gain on sale of land and buildings 0 70
Dividend income 40 0
Total revenue 640 320
Cost of goods sold 380 134
Operating expenses 164 80
Total expenses 544 214
Net Income $96 $106
Statement of Changes in Equity–Partial–Retained Earnings Section
Year Ended December 31, 20X6
(In thousands of $'s)
P S
Opening retained earnings $400 $100
Net income 96 106
Dividends (100) (40)
Ending retained earnings $396 $166
The balance of the land and buildings at December 31, 20X6, for P totaled $895,000 and for S totaled $450,000.
Additional Information:
1. S had reported a gain of $50,000, relating to land (40%) and building (60%) sold to P on January 3, 20X6. These separate properties had not been owned on January 1, 20X3. Remaining useful life was expected to be 10 years at that time.
2. S sold other land to a non-related company at a gain of $20,000 on June 30, 20X6.
3. Intercompany sales and inventory data for 20X5 and 20X6:
20X5 20X6
Sales by P to S $40,000 $60,000
Inventory not yet sold at end of year $20,000 $35,000
Sales by S to P $50,000 $50,000
Inventory not yet sold at end of year $10,000 $40,000
Profit margins on sales by P to S are 40%.
Profit margins on sales by S to P are at 30%.
Required:
1. Prepare a complete consolidated statement of comprehensive income for the year ending December 31, 20X6.
Expert Answer:
ANSWER Calcula tion of good cwill at date of acquisition January 20x3 PartHulars Amount ... View the full answer
