Reference no: EM132725890

River Ltd acquired a 25% interest (enough to constitute a significant influence) in Tree Ltd for $70,000 on 1 July 2017. At acquisition date, all the identifiable assets and liabilities of Tree Ltd were recorded at amounts equal to fair value, except for an item of plant whose fair value was $20,000 higher than its carrying amount. The equity of Tree Ltd at the date of acquisition totalled $210,000.

Additional information:

1. A dividend of $10,000 on 1 October 2017 and $15,000 on 1 November 2018 was paid by Tree Ltd.
2. In July 2017, Tree Ltd sold inventory to River Ltd for $15,000. This inventory had previously cost Tree Ltd $10,000, and remained unsold by River Ltd at the end of the period. By the end year ended 30 June 2019, this inventory was sold to external parties. 
3. For the year ended 30 June 2018, Tree Ltd recorded an after-tax profit of $40,000. 
4. For the year ended 30 June 2019, Tree Ltd recorded an after-tax profit of $60,000. 
5. The plant has an expected future life of 5 years, the benefits being received evenly over this period

Problem A. Assume River Ltd does not prepare consolidated financial statements. Prepare the journal entries in the records of River Ltd for the years ended 30 June 2018 and 30 June 2019 in relation to the investment in Tree Ltd.

Problem B. Assume River Ltd does prepare consolidated financial statements. Prepare the consolidated worksheet entries for the year ended 30 June 2019 for inclusion of the equity accounted results of Tree Ltd.