Reference no: EM133371080
Brand X Inc. (Brand X) purchased a controlling interest in Brand Y Inc. (Brand Y) on January 1, 2023. On that date, Brand Y Inc. had common shares and retained earnings worth $180,000 and $20,000, respectively. Goodwill is tested annually for impairment. At the date of acquisition, Brand Y's assets and liabilities were assessed for fair value as follows:
| Inventory |
$5,000 less than book value |
| Equipment |
$30,000 less than book value |
| Patent |
$24,000 greater than book value |
| Long term loan payable |
$5,000 less than book value |
The balance sheets of both companies, as at December 31, 2023 are disclosed below:
| |
Brand X |
Brand Y |
| Cash |
$200,000 |
$45,000 |
| Accounts receivable |
100,000 |
40,000 |
| Inventory |
80,000 |
55,000 |
| Equipment (net) |
220,000 |
100,000 |
| Patent |
--------- |
60,000 |
| Investment in Brand Y |
348,000 |
--------- |
| Total assets |
$948,000 |
$300,000 |
| Current liabilities |
$480,000 |
$53,000 |
| Long term Loan Payable |
270,000 |
50,000 |
| Common shares |
100,000 |
180,000 |
| Retained earnings |
98,000 |
19,000 |
| Total liabilities and equity |
$948,000 |
$300,000 |
Question 2 (con't)
Other Information:
• The net incomes for Brand X and Brand Y for the year ended December 31, 2023, were $1,000 and $50,000, respectively. Brand X did not declare any dividends during the year. However, Brand Y declared and paid $51,000 in dividends to make up for several years in which the company had never declared any dividends.
• An impairment test conducted on December 31, 2023 revealed that the goodwill should actually have a value $2,000 lower than the amount calculated on the date of acquisition.
• Both companies use a FIFO system, and Brand Y's inventory on the date of acquisition was sold during the year.
• Brand Y's equipment and patent have useful lives of 10 years and 6 years, respectively from the date of acquisition.
• The long term loan payable is due on January 1, 2028.
Required:
Prepare Brand X's consolidated balance sheet as at December 31, 2023, assuming that Brand X purchased 80% of Brand Y for $350,000 and accounts for its investment using the equity method. The non-controlling interest is calculated using the fair value enterprise (FVE) meth