Reference no: EM132843040
Question - On January 1, 2019, Puri Ltd. purchased 90% of the shares of Sabji Ltd. for $1,085,000. At that time, Sabji Ltd.'s balance sheet reflected the following amounts:
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Sabji Ltd. Balance Sheet January 1, 2019
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Net Book Value
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Fair Value
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Cash
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160000
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160000
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Accounts receivable
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120000
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150000
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Inventory
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180000
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230000
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Capital assets, net
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1500000
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1350000
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Current liabilities
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140000
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140000
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Long term debt
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800000
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850000
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Common shares
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400000
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Retained earnings
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620000
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The long-term debt will mature in 10 years and the capital assets have an average of 10 years of remaining life and are being amortized straight-line.
During 2019, Sabji earned $875,000 and paid dividends of $50,000. The annual goodwill impairment test conducted in both years indicated an impairment of $25,000 in 2020 and none in 2019. Both companies paid income taxes at a rate of 40% for both years.
At December 31, 2020, the following financial statements were available:
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Balance Sheets December 31, 2020
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Puri
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Sabji
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Cash
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290000
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175000
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Accounts receivable
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850000
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179000
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Inventory
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970000
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245000
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Capital assets, net
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2631000
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1863000
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Investment in Sabji. Ltd., at cost
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1085000
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-
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582600
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2462000
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Accounts payable
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450000
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49000
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Long term debt
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800000
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Common stock
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1000000
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400000
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Retained earnings
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4376000
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1213000
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5826000
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2462000
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Statements of Income and Retained Earnings For the Year Ended December 31, 2020
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Puri
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Sabjii
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REVENUES
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Sales
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9801000
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1880000
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Investment and other income
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64000
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EXPENSES
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Cost of sales
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8040000
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1140000
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Depreciation
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106000
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96000
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Income tax and other expenses
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369000
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816000
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Net income (loss)
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1350000
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(172000)
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Retained earnings, beginning of year
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3026000
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1445000
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Dividends paid
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(60000)
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Retained earnings, end of year
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4376000
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1213000
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Required -
(1) Prepare the 2020 consolidated income statement and retained earnings statement, including all supporting calculations and schedules. Schedules should include
a. Calculation of acquisition differential, allocation of AD, and goodwill.
b. Amortization of Acquisition Differential and Impairment schedule.
c. Schedule to calculate consolidated net income.
d. Schedule to calculate consolidated retained earnings.
(2) Calculate the 2020 consolidated balance sheet including all supporting calculations and schedules.
(3) If Puri Ltd. used the equity method of accounting for its investment in Sabji Ltd., what would be the balance in its investment in Sabji. Ltd. account at December 31, 2020?
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