Reference no: EM1341465

On January 1, 20X4, Chee Co. purchased 80% of the outstanding shares of Tyme Ltd. for $2,000,000 in cash.  On the acquisition date, Tyme's shareholders' equity consisted of the following:

                        Common shares                  $1,600,000
                        Retained earnings                     800,000

At the time of acquisition, the carrying values of Tyme's identifiable net assets equalled their fair market values with the following exceptions:

• The fair value of a building with an estimated remaining life of 10 years was $480,000 less than its carrying value.
• A long-term liability that matures in 8 years has a fair value that is $400,000 less than its carrying value.

The condensed income statements for Chee and Tyme are presented below:

Income Statements

Year ended December 31, 20X8

	Chee Co.	Tyme Ltd.
Sales	$1,600,000	$ 720,000
Investment income	800,000	80,000
Gain on sale of land	___-___	54,400
Total revenue	2,400,000	854,400
Cost of goods sold	1,040,000	400,000
Other expenses	768,000	256,000
Total expenses	1,808,000	656,000
Net income	mce_markernbsp; 592,000	$ 198,400

Additional information:

• At the beginning of 20X5, Chee acquired a piece of equipment from Tyme for $168,000.  Tyme had purchased the equipment 5 years ago for $320,000.  When Tyme purchased the equipment, it had expected that it would have a useful life of 20 years, with no residual value.  Chee concurred with this estimate (i.e., at the time of purchase, Chee expected that the equipment would have a remaining useful life of 15 years).  Both Tyme and Chee use the straight-line method of amortization.
• Sale of goods from Chee to Tyme:
  
                                  Gross         Unsold Goods in Tyme's
  Year          Sales Margin       Inventory at Year-End
  20X7         $400,000     30%                $80,000
  20X8           320,000     30%                   72,000
• Sale of goods from Tyme to Chee:
  
                                  Gross         Unsold Goods in Chee's
  Year          Sales Margin       Inventory at Year-End
  20X7         $240,000     40%                $56,000
  20X8           200,000     40%                   48,000
• All goods in inventory at year-end were sold to third parties in the subsequent year.
• On August 31, 20X8, Chee purchased a tract of land from Tyme for $106,400 in cash.  Tyme had acquired the land 12 years previously for $52,000.
• During 20X8, Chee declared and paid dividends of $200,000 and Tyme declared and paid dividends of $32,000.
• There was no impairment of goodwill at the end of 20X8.
• Chee accounts for its investments using the cost method and uses the entity theory method to report its business combinations.

Required:

a)   Prepare a consolidated income statement for Chee Co. for the year ended December 31, 20X8.  Be sure to show your supporting calculations. 

b)   Prove that your calculation of net income attributable to the shareholders of Chee Co. in (a) is correct by calculating Chee's net income using the equity method.