On January 18, 2018, X Company purchased 80% of the outstanding common shares of Y for $2 million in cash. On this date, the shareholders' equity of Y consisted of $1,000,000 no par value common stock and $800,000 of retained earnings Both companies use straight line method to calculate amortization. For the year ended December 31st 2021, the condensed income statements of X and Y were as follows: X......... $2,500,000...... $ 800,000 1,000,000...... Sales and other revenue...... Cost of Goods sold.................. Amortization expense.. 60,000 Other expenses... Net income..... 600,000 600,000...... 400,000...... $ 500,000. 20,000 $ 120,000 At December 31st 2021, the balance sheets of the two companies were as follows: X..... ...........Y.. $1,000,000 1,750,000.... 1,250,000 Cash........ ...........$ 220,000 Accounts receivable.... 650,000 Inventory.... 850,000 Land........ 900,000 I Bldg & Equipment 900,000 Accumulated depreciation... TOTAL ASSETS.... 3,000,000...... .......2,800,000..... (800,000). (400,000) $9,000,000............ $3,120,000 $1,800,000...... . Current liabilities..... $ 500,000 . 2,800,000... 900,000 Bldg.&Equipment 900,000 Accumulated depreciation......... TOTAL ASSETS......... (800,000).. (400,000) $9,000,000.. ..$3,120,000 $1,800,000.. Current liabilities........ $ 500,000 OL Long term liabilities........ 2,200,000. 800,000 No par Common Stock........ .... 3,000,000..... .... 1,000,000 Opening I Retained Earnings.... 1,800,000......... Net Income..... 120,000 Dividends...... [ 300,000).... TOTAL LIABILITIES & OWNERS' EQUITY $ 9,000,000..... .800,000 500,000..... (100,000 $3,120,000 a Additional Information:- i On January 15 2018,Y had accounts receivable which was $100,000 in excess of its carrying value; inventory had a fair value that was $100,000 less than its carrying value. Y also had a building with a fair value that was $600,000 greater than the carrying value as well as long term liabilities with a fair value which was $300,000 in excess of its carrying amount The building had an estimated remaining useful life of 20 years and the long-term debt was 15 years. ii. . On April 2nd 2019, Y sold a machine to X for $60,000. When Y purchased the machine on January 2nd 2015, for $80,000 it was estimated that its service life would be 10 years with no salvage value. There was no change in the estimated service life or salvage value at the time of the intercompany sale. During 2021, X sold merchandise to y for $100,000, a price that includes a 40% gross profit. At the end of the year 55% of this inventory remained. iv. On December 31st 2020, the inventories of Y contained merchandise purchased from Xon which X had recognized a gross profit of $25,000. V. On December 31st 2021, Yowed X $100,000 vi. During the year X declared paid dividends of $300,000 and Y declared and paid dividends of $100,000 Goodwill testing was done annually and this resulted in impairment of goodwill of $16,000 in 2018, $15,200 in 2019 and $10,400 in 2021 viii: X accounts for its investment in Y on the cost basis. ix. Both companies had a tax rate of 30% throughout the year. Required:- i. Calculate goodwill at the date of acquisition(5 marks) ii. The amortization schedule to December 31st 2021(5 marks) Tax schedules(10 marks) iv. Consolidated Net Income for year ending December 31st 2021(7 marks) V. Consolidated Retained Earnings at December 31st 2021(3marks) (HINT:-Use the quick method) vi. What would be the balances on the consolidated balance sheet at December 31st 2021 for the items below: vii. i. Calculate goodwill at the date of acquisition(5 marks) ii. The amortization schedule to December 31, 2021(5 marks) iii. Tax schedules(10 marks) iv. Consolidated Net Income for year ending December 31st 2021(7 marks) V. Consolidated Retained Earnings at December 31st 2021(3marks) (HINT:-Use the quick method) vi. What would be the balances on the consolidated balance sheet at December 31st 2021 for the items below: a. Goodwill(1 mark) b. Long-term liabilities(1.5 marks) C. Building(1.5 marks) d. Common Stock(1 mark) vii. Explain the conditions which would exist for the X Company to use the following methods of consolidation as opposed to using the acquisition method of consolidation:- a. The Proportionate Method of Consolidation (2 marks) The Net Identifiable Method of Consolidation (3 marks) On January 18, 2018, X Company purchased 80% of the outstanding common shares of Y for $2 million in cash. On this date, the shareholders' equity of Y consisted of $1,000,000 no par value common stock and $800,000 of retained earnings Both companies use straight line method to calculate amortization. For the year ended December 31st 2021, the condensed income statements of X and Y were as follows: X......... $2,500,000...... $ 800,000 1,000,000...... Sales and other revenue...... Cost of Goods sold.................. Amortization expense.. 60,000 Other expenses... Net income..... 600,000 600,000...... 400,000...... $ 500,000. 20,000 $ 120,000 At December 31st 2021, the balance sheets of the two companies were as follows: X..... ...........Y.. $1,000,000 1,750,000.... 1,250,000 Cash........ ...........$ 220,000 Accounts receivable.... 650,000 Inventory.... 850,000 Land........ 900,000 I Bldg & Equipment 900,000 Accumulated depreciation... TOTAL ASSETS.... 3,000,000...... .......2,800,000..... (800,000). (400,000) $9,000,000............ $3,120,000 $1,800,000...... . Current liabilities..... $ 500,000 . 2,800,000... 900,000 Bldg.&Equipment 900,000 Accumulated depreciation......... TOTAL ASSETS......... (800,000).. (400,000) $9,000,000.. ..$3,120,000 $1,800,000.. Current liabilities........ $ 500,000 OL Long term liabilities........ 2,200,000. 800,000 No par Common Stock........ .... 3,000,000..... .... 1,000,000 Opening I Retained Earnings.... 1,800,000......... Net Income..... 120,000 Dividends...... [ 300,000).... TOTAL LIABILITIES & OWNERS' EQUITY $ 9,000,000..... .800,000 500,000..... (100,000 $3,120,000 a Additional Information:- i On January 15 2018,Y had accounts receivable which was $100,000 in excess of its carrying value; inventory had a fair value that was $100,000 less than its carrying value. Y also had a building with a fair value that was $600,000 greater than the carrying value as well as long term liabilities with a fair value which was $300,000 in excess of its carrying amount The building had an estimated remaining useful life of 20 years and the long-term debt was 15 years. ii. . On April 2nd 2019, Y sold a machine to X for $60,000. When Y purchased the machine on January 2nd 2015, for $80,000 it was estimated that its service life would be 10 years with no salvage value. There was no change in the estimated service life or salvage value at the time of the intercompany sale. During 2021, X sold merchandise to y for $100,000, a price that includes a 40% gross profit. At the end of the year 55% of this inventory remained. iv. On December 31st 2020, the inventories of Y contained merchandise purchased from Xon which X had recognized a gross profit of $25,000. V. On December 31st 2021, Yowed X $100,000 vi. During the year X declared paid dividends of $300,000 and Y declared and paid dividends of $100,000 Goodwill testing was done annually and this resulted in impairment of goodwill of $16,000 in 2018, $15,200 in 2019 and $10,400 in 2021 viii: X accounts for its investment in Y on the cost basis. ix. Both companies had a tax rate of 30% throughout the year. Required:- i. Calculate goodwill at the date of acquisition(5 marks) ii. The amortization schedule to December 31st 2021(5 marks) Tax schedules(10 marks) iv. Consolidated Net Income for year ending December 31st 2021(7 marks) V. Consolidated Retained Earnings at December 31st 2021(3marks) (HINT:-Use the quick method) vi. What would be the balances on the consolidated balance sheet at December 31st 2021 for the items below: vii. i. Calculate goodwill at the date of acquisition(5 marks) ii. The amortization schedule to December 31, 2021(5 marks) iii. Tax schedules(10 marks) iv. Consolidated Net Income for year ending December 31st 2021(7 marks) V. Consolidated Retained Earnings at December 31st 2021(3marks) (HINT:-Use the quick method) vi. What would be the balances on the consolidated balance sheet at December 31st 2021 for the items below: a. Goodwill(1 mark) b. Long-term liabilities(1.5 marks) C. Building(1.5 marks) d. Common Stock(1 mark) vii. Explain the conditions which would exist for the X Company to use the following methods of consolidation as opposed to using the acquisition method of consolidation:- a. The Proportionate Method of Consolidation (2 marks) The Net Identifiable Method of Consolidation