Reference no: EM133190103
Question - On January 01, 2019, Pony Inc. purchased 100% of the outstanding voting shares of Sony Inc. for $200,000. On that date, Sony Inc. had common shares and retained earnings worth $100,000 and $60,000, respectively. The net incomes for Pony and Sony for the year ended December 31, 2019 were $160,000 and $90,000 respectively. Sony paid $9,000 in dividends to Pony during the year. There were no other inter-company transactions during the year. Moreover, an impairment test conducted on December 31, 2019, revealed that the Goodwill should have a value of $20,000. Both companies use a FIFO system, and most of Sony's inventory on the date of acquisition was sold during the year. Pony did not declare any dividends during the year.
The balance sheets of both companies, as well as Sony's fair market values on the date of acquisition are disclosed below:
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Pony Inc.
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Sony Inc.
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Sony Inc.
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(carrying value)
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(carrying value)
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(fair value)
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Cash
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$120,000
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$76,000
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$76,000
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Accounts Receivable
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$80,000
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$40,000
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$40,000
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Inventory
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$60,000
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$34,000
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$50,000
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Equipment (net)
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$400,000
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$80,000
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$70,000
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Trademark
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$70,000
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$84,000
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Total Assets
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$660,000
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$300,000
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Current Liabilities
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$180,000
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$80,000
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$80,000
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Bonds Payable
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$320,000
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$60,000
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$64,000
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Common Shares
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$80,000
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$100,000
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Retained Earnings
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$90,000
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$60,000
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Total Liabilities and Equity
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$660,000
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$300,000
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Required - What the amount of Retained Earnings appearing on the consolidated balance sheet as at January 1, 2019?
a. $150,000.
b. $90,000.
c. $70,000.
d. $60,000.
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