Question $2(10$ points$)$

VA $-$ When Puff acquired $85\%$ of Smoke on January $1,$ Year $1$ for $$238,000,$ the

imputed acquisition differential of $$60,000$ was allocated entirely to goodwill. On

December $31,$ Year $1,$ a goodwill impairment loss of $$1,500$ was recognized. Puff

uses the cost method to account for its investment in Smoke. Puff reported separate

entity net income in Year $1$ of $$25,000$ and declared no dividends. Smoke recorded

separate entity net income of $$40,000$ and paid dividends of $$9,000$ in year $1.$

Required: Compute the following

a$.$ Consolidated net income for year $1$

$(4$ marks$)$

b$.$ Income allocated to $NCl$ for year $1.$

$(2$ marks$)$

c$.$ Investment in Smoke at December $31,$ Year $1$ assuming Puff used the equity

method to account for its investment in Smoke.

$(4$ marks$)$