• Parent Corporation purchased 80% of the outstanding shares of Child Company on January 1, Year 7, at a cost of $136,000. On that date, Child had common shares of $70,000 and retained earnings of

• $36,000, and fair values were equal to carrying amounts for all its net assets, except inventory (overvalued by $15,000), land (included in PPE, undervalued by 20,000), Loan Payable (matured on Dec 31, Year 10; undervalued by 22,000) and building (included in PPE), which was overvalued by $30,000.  At the date of acquisition, the building had an estimated remaining life of twelve years. All amortization expenses are recorded in admin expenses. 

   

  • Parent's quality merchandise, leadership in customer care, and deep product knowledge will be a strong complement to Childs's well-established market base, best practices in the retail sales, and well-established talent pool of committed retail employees.

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  • The companies sell inventory to each other at a gross profit rate of 25%.

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  • The December 31, Year 11inventory of Parent contained purchases made from Child amounting to

• $27,000. There were no intercompany purchases in the inventory of Child on this date.

   

  • During Year 12, the following intercompany transactions took place:
    • Child made a payment of $10,000 to Parent for management fees, which was recorded under the category admin expenses. Parent recorded this fee in other income. 
    • Child made sales of $108,000 to Parent. The December 31, Year 12 inventory of Parent contained goods purchased from Child amounting to $40,000.
    • Parent made sales of $160,000 to Child. The December 31, Year 12inventory of Child contained goods purchased from Parent amounting to $42,000.
    • On July 1, Year 12, Parent borrowed $64,000from Child and signed a note bearing interest at 5% per annum or $3,200 per year. The principal amount of the loan is to be paid on December 31, Year 15. Parent paid the proper amount of interest to Child on December 31, Year 12. Child recorded this in other income. 

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  • During Year 12, Child sold 80% of its land to Parent (book value of land sold was 40,000) and recorded a $12,000 gain on the transaction. All of this land is currently being held by Parent on December 31, Year 12. No other land traction was made by Child in Year 12. 
  • Goodwill impairment losses occurred as follows: Year 10, $10,700;Year 11, $11,200;Year 12,

• $9,250.

  • In Year 12, Average Total Assets were $1,150,000 and $330,500 for Parent and Child respectively. The Average Total Assets in Year 12 for the Consolidated Entity was $1,420,810.
  • In Year 12, Average Total Shareholders' Equity were $505,400 and $170,200 for Parent and Child respectively. The Average Total Shareholders' Equity in Year 6 for the Consolidated Entity was $562,655.
  • Neither Parent nor Child paid any dividends in Years 7 to 11. In Year 12 Parent declared and paid 35,000 dividends for the current Year; and Child declared and paid dividend of 20,000 for the current year.  Parent recorded dividend from Child in other income. 

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  • Parent uses the Cost Method for internal reporting to account for its Investment in Child.

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  • Both companies have December31^st year-ends and pay income tax at 35% on their taxable incomes. Depreciation expenses is classified as other expenses by both Parent and Child.

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  • Statement of Income and Statement of Financial Position. 

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  1. prepare the consolidated financial statements for Year 12 

•        2. calculate financial ratios for both companies at entity level (Parent, Child) and then calculate the same ratios for the consolidated financial statement in the highlighted cells.