QUESTION #$3(25$ MARKS$)$

On December $31$st$.2020,$ X Ltd$.$ purchased $75\%$ of the common shares of the Y Co$.$ for $$3,570,000.$ On that date, the carrying amount of Y$$s identifiable net assets was $$4,080,000($Common Stock $$3,000,000$ and retained earnings $$1,080,000).$ The carrying amount of Y$$s identifiable net assets were equal to their fair values except that the carrying amount of Y$$s inventory was $$2,000,000$ while its fair value was $$2,119,000,$ and Y had unrecognized trademarks that were worth $$138,000.$

On the acquisition date, Y$$s retained earnings were $$1,080,000.$ The trademarks are being amortized over $6$ years. During $2024,$ an impairment loss of $$170,000$ occurred for the goodwill. Prior to $2023,$ there had not been any other impairment.

The Single Entity Statements of Income and Retained Earnings for both the X Company and the Y Company are given on the next page.

X LTD & Y LTD$.$

Statements of Income

Year ended December $31$st$.2024$

X$....................................$Y

Sales....................................................................................$$12,280,000....................$$$7,370,000$

Investment Income............................................................... $240,000....................12,000$

TOTAL REVENUE.................................................................. $.$$$12,520,000....................$$$7,382,000$

EXPENSES:

Cost of Goods sold................................................................ $7,859,000.....................5,159,000$

Depreciation & Amortization $.................................................531,000....................350,000$

Interest expenses................................................................... $212,000....................152,000$

Other expenses........................................................................... $793,000.....................356,000$

TOTAL EXPENSES..................................................................... $10,645,000....................6,563,000$

NET INCOME........................................................................... $1,875,000....................819,000$

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X LTD & Y LTD$.$

Statements of Retained Earnings

Year ended December $31$st$.2024$

X$..................................$Y

Retained Earnings at the beginning of the Year..................... $ $1,722,000...................$$$1,300,000$

Net Income........................................................................... $1,875,000....................819,000$

Dividends............................................................................... $625,000...................320,000$

Retained Earnings, end of Year....................................................$$2,972,000....................$$$1,799,000$

Additional Information:

i$.$ Y regularly sells inventory to X at a price that earns a gross profit of $30\%$ for Y$.$ During $2024,$ X purchased $$1,000,000$ of inventory from Y and $$400,000$ of it remained unsold at December $31$st$.2024.$ At December $31$st$\mathrm{.}2023,$ X did not have any inventory from Y on hand.

ii$.$ On December $31$st$\mathrm{.}2022,$ Y had sold some equipment to X for $$700,000($equipment is still being used by X$).$ Y$$s carrying amount for this equipment just prior to its sale was $$400,000.$ The remaining useful life of the equipment was $15$ years on the date of the sale.

iii. Land that originally cost $$390,000$ had been sold by X to Y in $2022$ for $$490,000.$ This land is still being held by Y at December $31$st$\mathrm{.}2024.$

iv$.$ The tax rate is $40\%.$

v$.$ X uses the cost method to account for the investment in Y in its separate entity financial statements.

vi$.$ X uses the acquisition method of consolidation.

Required:$-$Prepare the following for the year $2024$:$-$

A i$.$ Goodwill Schedule$(5$ marks$)$

ii$.$ Amortization Schedule$(3$ marks$)$

B$.$ i$.$ Inventory Schedule$(2$ marks$)$

ii $.$ Land Schedule $(1$ mark$)$

iii. Equipment Schedule$((3$ marks$)$

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C$.$ i$.$ Consolidated Net Income$(6$ marks$)$

ii$.$ NCI for the Income Statement$(1$ mark$)$

iii. Working paper eliminating entry at the date of acquisition$(4$ marks$)$