Advanced Accounting

Parent purchased 75% of the voting shares of Sub for $525,000 on January 1, 20X1. On that date, Sub’s Common Stock and Retained Earnings had a book
value of $200,000 and $100,000 respectively.
Sub’s fair values approximated its carrying values with the following exceptions:

  • Warehouse had a fair value $30,000 higher than carrying value, (10 years remaining)
  • Equipment had a fair value $50,000 lower than carrying value (8 years remaining)

 
The Financial Statements of both companies for the Year ended December 31, 20×1 are shown below:
 
Income Statements                                       Parent                                                 Sub
Sales                                                                           $500,000                                 $400,000
Other Revenues                                                          $100,000                                 $60,000
Cost of Goods Sold                                                     $(400,000)                               $(320,000)
Depreciation Expense                                                  $(20,000)                                 $(10,000)
Other Expenses                                                           $(60,000)                                 $(30,000)
Income Tax Expense                                                    $(48,000)                                 $(40,000)
Net Income                                                                   $72,000                                   $60,000
 
Statement of Retained Earnings
Retained Earnings, December 31, 20×9                      $200,000                                 $240,000
Dividends                                                                     $(22,000)                                 $(30,000)
Balance, December 31, 20×10                                     $250,000                                 $270,000
 
Balance Sheet
 
Cash                                                                            $150,000                                 $120,000
Warehouse                                                                  $25,000                                   $160,000
Inventory                                                                      $200,000                                 $180,000
Investment in YANG Inc.                                              $525,000                                 ——
Land                                                                            $40,000
Equipment (net)                                                           $360,000                                 $240,000
$1,600,000                              $700,000
 
Current Liabilities                                                         $600,000                                 $130,000
Bonds Payable                                                            $250,000                                 $100,000
Common Shares                                                          $500,000                                 $200,000
Retained Earnings                                                       $250,000                                 $270,000
$1,600,000                              $700,000
 
Additional Information:
Part A
During Year 1 Sub sold inventory to Parent for $90,000. At the year-end 25% of the inventory is remained.
During Year 1 Parent sold inventory to Sub for $60,000. At the year-end 25% of the inventory is remained.
No Goodwill impairment.
Prepare:
Calculate Goodwill
Non-controlling interest
Consolidated Balance Sheet, Income Statement and Retained Earnings at December 31, 20X1
Part B
Use the same data from statements for Year 2
Last year ending inventory for Parent and Sub both sold in Year2
During Year 2 Sub sold inventory to Parent for $90,000. At the year-end 50% of the inventory is remained.
During Year 2 Parent sold inventory to Sub for $60,000. At the year-end 50% of the inventory is remained.
Prepare:
Consolidated Balance Sheet, Income Statement and Retained Earnings at December 31, 20X2
Changes in Non-controlling interest-Year 2