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On January 1, 2015, King Corp. acquired 80% of Kong Corp. for $500,000. King uses the cost method to account for its investment.

On January 1, 2015, Kong's retained earnings and common shares were $350,000 and $110,000, respectively.

Kong's book values did not differ materially from its fair values on the date of acquisition with the following exceptions:

• Inventory had a fair value that was $20,000 higher than its book value. This inventory was sold to outsiders during 2015.
• A patent (which had not previously been accounted for) was identified on the acquisition date with an estimated fair value of $15,000. The patent had an estimated useful life of 6 years.

The Financial Statements of King Corp. and Kong Corp. for the year ended December 31, 2020

are shown below:

Income Statements	King Corp.	Kong Corp.
Sales	$500,000	$300,000
Other Revenues	$300,000	$120,000
Less: Expenses
Cost of Goods Sold	$400,000	$240,000
Depreciation Expense	$ 20,000	$10,000
Other Expenses	$80,000	$40,000
Income Tax Expense	$120,000	$52,000
Net Income	$180,000	$78,000
Balance Sheets	King Corp.	Kong Corp.
Cash	$50,000	$25,000
Accounts Receivable	$100,000	$250,000
Inventory	$50,000	$250,000
Investment in Kong Corp.	$500,000
Land		$25,000
Equipment	$400,000	$200,000
Accumulated Depreciation	($250,000)	($150,000)
Total Assets	$850,000	$600,000
Current Liabilities	$320,000	$62,000
Dividends Payable	$30,000	$38,000
Common Shares	$100,000	$110,000
Retained Earnings	$400,000	$390,000
Total Liabilities and Equity	$850,000	$600,000

Other Information:

1. King sold a tract of Land to Kong at a profit of $10,000 during 2016. This land is still the property of Kong Corp.
2. On January 1, 2018, Kong sold equipment to King at a price that was $20,000 higher than its book value. The equipment had a remaining useful life of 4 years from that date.
3. On January 1, 2020, King's inventories contained items purchased during 2019 from Kong for $10,000. This entire inventory was sold to outsiders during 2020. Also during 2020, King sold inventory to Kong for $50,000. Half this inventory is still in Kong's warehouse at year end. All sales are priced at a 25% mark-up on selling price, regardless of whether the sales are internal or external.
4. There was a goodwill impairment loss of $4,000 during 2020.
5. Both companies are subject to an effective tax rate of 40%
6. Both companies use straight line amortization.
7. Dividends paid in 2020: King $30,000 Kong $38,000

Required:

1. Prepare a statement of computation and allocation of Acquisition Differential as at January 1, 2015, showing the amount of NCI on the date of acquisition of Kong.
2. Prepare the Acquisition Differential Amortization / Impairment Statement as at December 31, 2020
3. Prepare a Statement of Realized / Unrealized After Tax Profit on Inter Company Sale of Inventory for the year ended December 31, 2020
4. Prepare a Statement of Realized / Unrealized After Tax Gain on Sale of Land
5. Prepare a Statement of Realized / Unrealized After Tax Gain on Sale of Equipment
6. Compute the Consolidated Net Income for the Year Ended December 31, 2020 showing the profit allocated to Non Controlling Interests (NCI)
7. Prepare a Statement of Consolidated Retained Earnings for the year ended December 31, 2020
8. Prepare a Statement of Non Controlling Interests (NCI) Balance Sheet as at December 31, 2020
9. Use your calculations in a through h above to prepare the Consolidated Income Statement and Balance Sheet of Kong as at December 31, 2020

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