Which should be deducted from asters net income

Assignment Help Financial Accounting

Reference no: EM13225623

Problem:

Goodwill

		Parent's 80%	NCI 20%	Total 100%
Cost of 80% of Aster Ltd.		1,000,000
Value of 20% of Aster Ltd.			250,000
Imputed value of 100% of Aster Ltd.				1,250,000
Book value of Aster's net assets
Common shares	375,000
Retained earning	693,750

	1,068,750	855,000	213,750	1,068,750

Acquisition Differential
Allocated:	FV-BV
Inventories	12,500
Equipment	93,750
Investments	12,500
	118,750			118,750

Balance--goodwill				62,500

On the acquisition date, the equipment was estimated to have remaining life of 10 years with no residual value.

Acquisition differential on Equipment was $93,750/10 year=$9,375/year

Acquisition-differential amortization and impairment

	Balance Jan.1 20X1	Amortization & impairment		Balance December 31 20X6
	Balance Jan.1 20X1	To the end 20X5	20x6	Balance December 31 20X6
Inventory	12,500	12,500	-	-
Investment	12,500	12,500	-	-
Equipment	93,750	46,875	9,375	37,500
	118,750	71,875	9,375	37,500

Peony Ltd received $112,500 royalties payment from Aster Ltd.

At the beginning of 20X4, Peony purchased some equipment from Aster for $113,750 and their book value were $87,500.

Gain on sale of equipment was $26,250

Gain realized each year would be

$26,250/7years=$3,750

Depreciation expense: $113,750/7 years=$16,250 per year - $3,750=$12,500

December 31,20X5, Aster's inventory included $25,000 of goods purchased from Peony. This is upstream intercompany transaction. The goods sold in 20X6 and got a profit of $10,000 (40%*$25,000). $10,000 should be added to Peony's net income.

December 31,20X5, Peony purchased $125,000 of goods from Aster, and the goods were sold in 20X6. This is a downstream intercompany transaction. The profit of $50,000(40%*$125,000) should be added to Aster's net income.

In 20X6, Peony sold goods to Aster of $125,000. The total profit would be $50,000(40%*$125,000). However, $50,000 of the goods were still in Aster's inventory. $20,000 should be hold back as unrealized profit that should be deducted from Peony's net income.

In 20X6, Aster sold $875,000 goods to Peony. The profit would be $350,000($875,000*40%). $87,500 of goods was still in Peony's inventory that result in an unrealized profit of $35,000($87,500*40%), which should be deducted from Aster's net income.

Net income--Peony	581,250
Less dividend income from Aster(80% of Aster's paid out dividends)	90,000
Less royalty revenue	112,500
Add a profit of beginning inventory	10,000
Less a profit of ending inventory	20,000
Adjusted net income		398,750

Net income-- Aster	236,250
Less Acquisition differential on equipment	9,375
Add a profit of beginning inventory	50,000
Less a profit of ending inventory	35,000
Adjusted net income	241,875
Net income
Allocated to
Shareholders' of Peony	*80%	193,500
NCI	*20%	48,375

Consolidated net income		592,250

Peony Ltd

Consolidated income statement

Sales		$2,500,000+$1,875,000- ($125,000+$875,000)
Royalty revenue	$75,000	$187,500-royalty revenue:$112,500
Dividend income	$3,750	$93,750-$90,000
Total revenue

Cost of sales		$1,500,000+$1,125,000-($125,000+$875,000)+$20,000+$35,000- ($10,000+$50,000)
Other expenses		700,000+513,750-$9,375
Depreciation expense
Total expenses	$2,877,125

Net income	$551,625

Assets:
Cash and Cash Equivalents
Accounts Receivable
Land
Building (net)
Equipment (net)
Goodwill
Total assets

Liabilities and shareholders' equity:
Accounts payable
Long-term debt
Total liabilities

Common shares
Retained earnings
Total shareholders' equity

Total liabilities and shareholders' equity

Reference no: EM13225623

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