- On January 2 Year 5 Road Ltd Acquired 70 Of The Outstanding Voting Shares Of Runner Ltd The Acquisition Differentia 1 (32.55 KiB) Viewed 222 times
On January 2. Year 5, Road Ltd. acquired 70% of the outstanding voting shares of Runner Ltd. The acquisition differential of $520.000 on that date was allocated in the following manner: $160.000 110,000 Inventory Land Plant and equipment Patent 120.000 40,000 Estimated life 5 years Estimated life 3 years Goodwill 90.000 $520.000 The Year 9 income statements for the two companies were as follows: Road $4,600,000 206,500 Runner $2,160,000 Sales Intercompany investment income Rental revenue Total income Materials used in manufacturing Changes in work-in-progress and finished goods inventory Employee benefits 4.806,500 2.300.000 105.000 190.000 2,350.000 860,000 (10,000) 610.000 540.000 Interest expense 310.000 200.000
610.000 310.000 465.000 540.000 200.000 275.000 55.000 Employee benefits Interest expense Depreciation Patent amortization Rental expense Income tax Total expenses Profit 95.000 360,000 191,200 4.245.000 2,111,200 $ 561,500 $ 238,800 Additional Information Runner regularly sells raw materials to Road. Intercompany sales in Year 9 totalled $480.000. • Intercompany profits in the inventories of Road were as follows: January 1, Year 9 $247.000 December 31. Year 9 100.000 . • Road's entire rental expense relates to equipment rented from Runner. A goodwill impairment loss of $3.000 occurred in Year 9. Retained earnings at December 31, Year 9. for Road and Runner were $2,523,300 and $1,210,000, respectively. • Road uses the equity method to account for its investment, and uses income tax allocation at the rate of 40% when it prepares consolidated statements. Required (2) Prepare a consolidated income statement for Year 9 with expenses classified by nature. (b) Calculate consolidated retained earnings at December 31, Year 9. ©) If Road had used the identifiable net assets method rather than the fair value enterprise method, how would this affect the
Required (a) Prepare a consolidated income statement for Year 9 with expenses classified by nature. (b) Calculate consolidated retained earnings at December 31, Year 9. ©) If Road had used the identifiable net assets method rather than the fair value enterprise method, how would this affect the return on equity attributable to shareholders of Road for Year 9? Briefly explain.