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  3. x co. acquired 80% of y co. on january 1, year 3,

X Co. acquired 80% of Y Co. on January 1, Year 3, when Y Co....

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Accounting

X Co. acquired 80% of Y Co. on January 1, Year 3, when Y Co. had common shares of $140,000 and retained earnings of $74,000. The acquisition differential was allocated as follows on this date:
Inventory $ 64,000
Equipment (15-year life)51,000
Total acquisition differential $ 115,000
Since this date the following events have occurred:
Year 3
Y Co. reported a net income of $134,000 and paid dividends of $29,000.
On July 3, X Co. sold land to Y Co. for $120,000. This land was carried in the records of X Co. at $79,000.
On December 31, Year 3, the inventory of X Co. contained an intercompany profit of $34,000.
X Co. reported a net income of $440,000 from its own operations.
Year 4
Y Co. reported a net loss of $20,000 and paid dividends of $9,000.
Y Co. sold the land that it purchased from X Co. to an unrelated company for $134,000.
On December 31, Year 4, the inventory of Y Co. contained an intercompany profit of $16,000.
X Co. reported a net income from its own operations of $76,000.
Required:
Assume a 40% tax rate.

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