Reference no: EM132905100
Question: On January 1, 2017 Packers Corp. purchased 90% of the outstanding shares of Seahawks Ltd. for $144,000 cash. On January 1, 2017 Seahawks had common shares of $75,000 and retained earnings of $30,000 and fair values were equal to book values for all the net assets except the following:
Book Value Fair Market Value
Inventory $ 80,000 $ 75,000
Equipment 105,000 125,000
Patent --- 25,000
Bonds Payable 100,000 89,587
The equipment had an estimated remaining life of five (5) years on January 1, 2017. The Patent has a ten (10) year life. The bonds mature December 31, 2023. The 6% bonds pay interest annually December 31. The market rate of interest January 1, 2017 was 8%. Packers uses the cost method to account for its investment. The testing for impairment as at December 31, 2020 yielded the following fair values (recoverable amount):
Patents $10,000
Goodwill 15,000
The following are the financial statements of Packers Corp. and its subsidiary Seahawks Ltd. as at December 31, 2020:
BALANCE SHEETS
As at December 31, 2020
Packers Corp Seahawks Ltd.
Packers Corp Seahawks Ltd.
Cash $ 21,000 $ 35,000
Accounts Receivable 85,000 55,000
Note receivable -- 35,000
Inventory 65,000 65,000
Equipment (net) 180,000 140,000
Land 135,000 60,000
Investment in Seahawks (cost method) 144,000 --
$630,000 $390,000
Bank Loan Payable $ 75,000 $ --
Accounts Payable 98,000 15,000
Bond Payable -- 100,000
Note Payable 35,000 --
Common Shares 150,000 80,000
Retained Earnings 272,000 195,000
$630,000 $390,000
STATEMENTS OF INCOME AND RETAINED EARNINGS
Packers Corp. Seahawks Ltd.
Sales $861,750 $380,000
Investment income 10,000 5,000
Dividend Income 27,000 _
$898,750 $385,000
Cost of Sales 520,000 230,000
Amortization expense-equipment 50,000 15,000
Interest expense 25,000 15,000
Miscellaneous expenses 95,000 25,000
Income Taxes 88,000 40,000
778,000 325,000
Net Income 120,750 60,000
Retained earnings,
Beginning of year 181,250 165,000
Dividends declared (30,000) (30,000)
Retained earnings, Dec 31, 20120 $272,000 $195,000
Other information:
The notes payable are intercompany and are non-interest bearing.
REQUIRED:
a) Calculate and allocate acquisition differential.
b) Prepare an amortization schedule of acquisition differential to December 31, 2020 Show all calculations.
c) Prepare a Consolidated Income Statement for the year ended December 31, 2020 Show your calculation for consolidated net income
d) Calculate Consolidated Retained Earnings at January 1, 2020
e) Prepare a Consolidated Statement of Retained Earnings for year ended December 31, 2020
f) Prepare a Consolidated Balance Sheet at December 31, 2020.
Attachment:- Financial statements.rar