Reference no: EM132727910

On October 1, 2017, DDD purchased 80% of the common shares of LWS for $8,000,000. On that date, the common stock was $5,000,000 and the retained earnings was $4,500,000.

The fair value of all the assets and liabilities are equal to book value with the following exceptions: 

Accounts Receivable is overvalued by $185,000,
Property and equipment, with a useful life of 10 years, is overvalued by $250,000,
Inventory is undervalued by $768,600, and 
Land is undervalued by $600,000

Additional information:

1. On April 1, 2018, DDD sold to LWS equipment for $6,400,000. The equipment had been on DDD's books at an initial cost of $11,000,000 with accumulated depreciation of $3,750,000. The remaining useful life was eight (8) years at the date of sale.

2. In the 2019 fiscal year-end, LWS sold ¼ of the land that existed at acquisition for a profit of $147,000. The remaining land that existed at acquisition is still held by LWS.

3. DDD periodically purchases material from LWS. The accountant for LWS determined that total sales to DDD during 2021 were $2,479,000 and for 2020 $1,381,000. LWS marks up products by 60%. DDD's accountant determined that at year end (2021), 25% of the purchases from LWS were in ending inventory, whereas only 15% of the purchases were on hand at the end of 2020.

4. In the current year, DDD charged LWS a management fee of $65,000 for services rendered. Of this amount, LWS still owes $22,000 at the end of the year. Management fees are recorded in general and admin.

5. In June 2018, DDD sold a parcel of land to LWS for $450,000. The original cost to DDD was $375,000. LWS sold that land in the current year for a profit of $125,000.

Problem 1: How would treat each of these with respect to consolidation - intercompany transaction. Need make a calculation for goodwill, amortization schedule for the fair value assets, and then analyze the calculations for intercompany transactions