The following financial statements were prepared on December 31, Year 6.

BALANCE SHEET
		Parent				Subsid
Cash	$	480,000			$	280,000
Accounts receivable		380,000
Inventory		2,900,000				600,000
Plant and equipment		3,900,000				4,490,000
Accumulated depreciation		(930,000	)			(490,000	)
Investment in Subsid Company (at cost)		4,200,000
	$	10,930,000			$	4,880,000
Liabilities	$	584,000			$	786,000
Common shares		4,650,000				2,500,000
Retained earnings		5,696,000				1,594,000
	$	10,930,000			$	4,880,000

INCOME STATEMENT
Sales	$	4,900,000		$	1,900,000
Dividend income		304,000
		5,204,000			1,900,000
Cost of sales		2,680,000			580,000
Miscellaneous expenses		410,000			88,000
Administrative expense		98,000			28,000
Income tax expense		340,000			210,000
		(3,528,000)			(906,000)
Net income	$	1,676,000		$	994,000

RETAINED EARNINGS STATEMENT
Balance, January 1	$	4,700,000		$	980,000
Net income		1,676,000			994,000
		6,376,000			1,974,000
Dividends		(680,000)			(380,000)
Balance, December 31	$	5,696,000		$	1,594,000

Additional Information

Parent purchased 80% of the outstanding voting shares of Subsid for $4,200,000 on July 1, Year 2, at which time Subsid’s retained earnings were $490,000, and accumulated depreciation was $78,000. The acquisition differential on this date was allocated as follows:

• 20% to undervalued inventory
• 40% to equipment—remaining useful life 8 years
• Balance to goodwill

During Year 3, a goodwill impairment loss of $88,000 was recognized, and an impairment test conducted as at December 31, Year 6, indicated that a further loss of $38,000 had occurred.

Subsid owes Parent $93,000 on December 31, Year 6.

Please note: Amortization expenses are grouped with cost of goods sold account and impairment losses are grouped with administrative expenses.

Required:

1. Prepare consolidated financial statements on December 31, Year 6, including Income Statement, Retained Earnings Statement and Balance Sheet (use Direct Approach)
2. Include the following calculations

1) Acquisition Differential and Goodwill amounts

2) Acquisition Differential amortization from year 2 to year 6.

3) Consolidated income with attributable to Parent’s shareholders and NCI

4) Consolidated Retained Earnings calculation

5) Calculation of NCI amount for Balance Sheet

Answer rating: 100% (QA)

To prepare the consolidated financial statements using the direct approach we need to consolidate the financial information of the parent company and ... View the full answer