Reference no: EM133009202
Question - At December 31, 2014, George Weston LtdBluenotes Ltd. purchased 90% of the outstanding common shares of for $8.55 million in cash. On that date, the shareholders' equity of Bluenotes totaled $8 million and consisted of $1 million in common shares and $7 million in retained earnings. Both companies use the straight-line method to calculate depreciation. Goodwill, if any arises as a result of this business combination, is written down when there is an impairment. Both George Weston and Bluenotes report under accounting standards for private enterprises and pay tax at the rate of 40%.
For the year ending December 31, 2019, the statements of earnings for George Weston and Bluenotes were as follows:
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George Weston
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Bluenotes
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Sales and other revenue
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$22,500,000
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$9,800,000
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|
Cost of goods sold
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16,000,000
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5,000,000
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|
Depreciation expense
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2,500,000
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2,000,000
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|
Other expenses
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1,800,000
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1,200,000
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|
Net income
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$2,200,000
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$1,600,000
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At December 31, 2019, the condensed statements of financial position for the two companies were as follows:
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George Weston
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Bluenotes
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Total assets
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$31,000,000
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$13,500,000
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|
Liabilities
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$5,000,000
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$1,200,000
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|
No par common shares
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12,100,000
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1,000,000
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Retained earnings
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13,900,000
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11,300,000
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Total
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$31,000,000
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$13,500,000
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Other Information:
On December 31, 2014, Bluenotes had a building with a fair value that was $300,000 greater than its carrying value. The building had an estimated remaining useful life of 20 years.
On December 31, 2014, Bluenotes had an inventory with a fair value that was $200,000 less than its carrying value. This inventory was sold in 2016.
During 2019, George Weston sold merchandise to Bluenotes for $100,000, a price that includes a gross profit of $40,000. During 2019, 40% of this merchandise was resold by Bluenotes to third parties and the other 60% remains in its December 31, 2019 inventories. On December 31, 2018, the inventories of Bluenotes contained merchandise purchased from George Weston on which George Weston had recognized a gross profit of $20,000.
During 2019, George Weston declared and paid dividends of $300,000 while Bluenotes declared and paid dividends of $100,000.
George Weston accounts for its investment in Bluenotes using the cost method.
The retained earnings of George Weston as of December 31, 2018, was $12,000,000. On that date, Bluenotes had retained earnings of $9,800,000. Bluenotes has not issued any common shares since its acquisition by George Weston.
There were no specific events or circumstances between 2015 and 2019 to indicate any impairment of goodwill.
Required - Calculate consolidated net income for the year ending December 31, 2019.