Cost of 70% investment in Barrel Ltd.

$ 329,000
Implied value of 100% investment in Barrel Ltd. $ 470,000
Carrying amount of Barrel Ltd's net assets Assets $ 480,000
Liabilities $ 180,000 $ 300,000
Implied acquisition differential $ 170,000
Plant and equipment $ 50,000
Balance-goodwill $ 120,000
Noncontrolling interest $ 141,000

Pork Co.
CONSOLIDATED BALANCE SHEET
At December 31, Year 2
Cash $ 82,000
Accounts receivable $ 93,000
Inventory $ 222,000
Plants and equipment $ 720,000
Goodwill $ 120,000
$ 1,237,000

Current liabilities $ 288,000

Long-term debt $ 348,000
Total liabilities $ 636,000
Shareholders' equity
Controlling interest
Common shares $ 260,000
Retained earnings $ 200,000
$ 460,000
Non-controlling interest $ 141,000 $ 601,000
$ 1,237,000
Goodwill under entity theory $ 120,000
Less NCI's share (30%) $ 36,000
Goodwill under parent extension theory $ 84,000

NCI under entity theory $ 141,000

Less NCI's share of goodwill(30%) $ 36,000
Goodwill under parent extension theory $ 105,000
 CALCULATION OF CONSOLIDATED RETAINED EARNINGS
AT DEC 31, YEAR 7
Retained earnings - Grant
Retained earnings - Devy $ 32,500
Retained earnings - Devy, acquisition date $ 15,000
Increase since acquisition $ 17,500
Grant's ownership 80%
Parent's share of changes to acquisition differential:
(80%*[5,500+1,000]+2,000)
Consolidated retained earnings

Working schedules:
CALCULATION OF ACQUISITION DIFFERENTIAL
Parent's 80% NCI's 20%
Cost of 80% of Devy $ 35,000
Value of 20% of Devy (1,000 shares*$7) $ 7,000
Implied value of 100% of Devy
CA of Devy's net assets = CA of shareholders' equity
Common shares $ 12,500
Retained earnings $ 15,000
$ 27,500 $ 22,000 $ 5,500
Acquisition differential $ 13,000 $ 1,500
Allocated: FV - CA
Inventory $ 2,500
Patent $ 5,000
$ 7,500 $ 6,000 $ 1,500
Goodwill $ 7,000 $ -

CHANGES TO ACQUISITION DIFFERENTIAL

Changes since Acquisition
Balance Jan 1, Year 4 To End of Year 6 Year 7
Inventory $ 2,500 $ (2,500)
Patent $ 5,000 $ (3,000) $ (1,000)
$ 7,500 $ (5,500) $ (1,000)
Goodwill $ 7,000 $ - $ (2,000)
$ 14,500 $ (5,500) $ (3,000)
ARNINGS

$ 150,000

$ 14,000

$ (7,200)
$ 156,800

TIAL
Total 100%

$ 42,000

$ 27,500
$ 14,500

$ 7,500
$ 7,000

AL

Balance Dec 31, Year 7

$ -
$ 1,000
$ 1,000
$ 5,000
$ 6,000
 Grant Corporation Grant Corporation
CONSOLIDATED INCOME STATEMENT CONSOLIDATED STATEMENT OF FINANCIAL POSITION
For the year ended Dec 31, Year 7 Dec 31, Year 7
SALES $ 630,000 CASH
COGS $ 290,000 ACCOUNTS RECEIVABLE
Distribution expense $ 28,500 INVENTORY
Other expenses $ 120,000 EQUIPMENT (NET)
Income tax expense $ 68,000 PATENT (NET)
$ 506,500 GOODWILL
Net income $ 123,500
Attributable to: ACCOUNTS PAYABLE
Shareholders of Grant $ 121,400 OTHER ACCRUED LIABILITIES
NCI $ 2,100 INCOME TAXES PAYABLE
$ 123,500 COMMON SHARES
RETAINED EARNINGS
NCI

Working schedules:
CALCULATION OF CONSOLIDATED NET INCOME ATTRIBUTABLE TO PARENT
Year 7
Profit-Grant $ 115,000
Profit-Devy $ 11,500
Grant's ownership 80% $ 9,200
Parent's share of changes to acquisition differential:
(80%*1,000+2,000) $ (2,800)
$ 121,400

CALCULATION OF CONSOLIDATED NET INCOME ATTRIBUTABLE TO NCI

Net income-Devy $ 11,500
NCI's ownership 20%
$ 2,300
NCI’s share of changes to acquisition differential:
(20%*1,000) $ (200)
$ 2,100

CALCULATION OF NCI
At Dec 31, Year 7
Common shares-Devy $ 12,500
Retained earnings-Devy $ 32,500
$ 45,000
NCI's ownership 20%
$ 9,000
NCI's share of remaining acquisition differential:
(20%*1,000) $ 200
$ 9,200
ation
F FINANCIAL POSITION
r7
$ 11,500
$ 118,500
$ 205,000
$ 217,500
$ 2,000
$ 5,000
$ 559,500
$ 177,500
$ 55,000
$ 76,000
$ 85,000
$ 156,800
$ 9,200
$ 559,500
 PALM INC. PALM INC.
CONSOLIDATED INCOME STATEMENT CONSOLIDATED STATEMENT OF FIN
For the year ended December 31, Year 16 DECEMBER 31, YEA
Sales $ 1,475,000 Plant assets
Interest and dividend income $ 30,000 Other investments
$ 1,505,000 Notes receivable
COGS $ 1,038,000 Inventory
Selling expenses $ 81,550 Accounts receivable
Other expenses $ 277,000 Cash
$ 1,396,550 Trademarks
Profit $ 108,450 Goodwill
Attributable to:
Shareholders of Palm $ 75,915 Ordinary shares
NCI $ 32,535 Retained earnings
$ 108,450 NCI

Notes payable
Other current liabilities
Accounts payable

SUPPORTING SCHEDULES:
CALCULATION OF ACQUISITION DIFFERENTIAL
Parent's 70% NCI's 30%
Cost of 70% of Storm $ 350,000
Implied value of 100% of Storm
Value of 30% of Storm $ 150,000
CA of Storm's net assets = CA of shareholders' equity
Common shares $ 240,000
Retained earnings $ 84,000
$ 324,000 $ 226,800 $ 97,200
Acquisition differential $ 123,200 $ 52,800
Allocated:
Plant assets $ 48,000
Trademarks $ 36,000
$ 84,000 $ 58,800 $ 25,200
Goodwill $ 64,400 $ 27,600

CHANGES TO ACQUISITION DIFFERENTIAL

Changes since Acquisition
Balance Dec 31, Year 2 To End of Year 5 Year 6
Plant Assets (8 years) $ 48,000 $ (18,000) $ (6,000)
Trademarks (9 years) $ 36,000 $ (12,000) $ (10,550)
$ 84,000 $ (30,000) $ (16,550)
Goodwill-parent $ 64,400 $ - $ (28,700)
Goodwill-NCI $ 27,600 $ - $ (12,300)
Goodwill-total $ 92,000 $ - $ (41,000)
$ 176,000 $ (30,000) $ (57,550)

CALCULATION OF CONSOLIDATED NET INCOME ATTRIBUTABLE TO PARENT

YEAR 6
Profit-Palm
Less dividend from Storm

Profit-Storm $ 72,000
Palm's ownership 70%
Parent's share of changes to acquisition differential:
(70%*16,550+28,700)

CALCULATION OF CONSOLIDATED NET INCOME ATTRIBUTABLE TO NCI

Net income-Storm
NCI's ownership

NCI's share of changes to acquisition differential:

(30%*16,550+12,300)

CALCULATION OF CONSOLIDATED RETAINED EARNINGS

AT DEC 31, YEAR 6
Retained earnings - Palm
Retained earnings - Storm $ 190,000
Retained earnings - Storm, acquisition date $ 84,000
Increase since acquisition $ 106,000
Grant's ownership 70%
Parent's share of changes to acquisition differential:
(70%*30,000+40,285)
Consolidated retained earnings

CALCULATION OF NCI
AT DEC 31, YEAR 6
Ordinary shares-Storm $ 240,000
Retained earnings-Storm $ 190,000
$ 430,000
NCI's ownership 30%
$ 129,000
NCI's share of remaining acquisition differential:
(30%*37,450+15,300) $ 26,535
$ 155,535
 PALM INC.
TED STATEMENT OF FINANCIAL POSITION
DECEMBER 31, YEAR 6
$ 494,000
$ 122,000
$ 14,000
$ 350,000
$ 272,000
$ 58,000
$ 13,450
$ 51,000
$ 1,374,450
$ 540,000
$ 162,915
$ 155,535
$ 858,450
$ 260,000
$ 68,000
$ 188,000
$ 1,374,450

Total 100%

$ 500,000

$ 324,000
$ 176,000

$ 84,000
$ 92,000

Balance Dec 31, Year 6

$ 24,000
 $ 13,450
$ 37,450
$ 35,700
$ 15,300
$ 51,000
$ 88,450

LE TO PARENT

$ 108,000
$ 14,000
$ 122,000

$ 50,400

$ (40,285)
$ 132,115

ABLE TO NCI
$ 72,000
30%
$ 21,600

$ (17,265)
$ 4,335

NGS

$ 150,000

$ 74,200

$ (61,285)
$ 162,915
Acquisition differential if none of the acquisition differential had been allocated to trademarks:
Parent's 70%
Cost of 70% of Storm $ 350,000
Implied value of 100% of Storm
Value of 30% of Storm
CA of Storm's net assets = CA of shareholders' equity
Common shares $ 240,000
Retained earnings $ 84,000
$ 324,000 $ 226,800
Acquisition differential $ 123,200
Allocated:
Plant assets $ 48,000 $ 33,600
Goodwill $ 89,600

CHANGES TO ACQUISITION DIFFERENTIAL

Changes since Acquisition
Balance Dec 31, Year 2 To End of Year 5
Plant Assets (8 years) $ 48,000 $ (18,000)
Goodwill-parent $ 89,600 $ -
Goodwill-NCI $ 38,400 $ -
Goodwill-total $ 128,000 $ -
$ 176,000 $ (18,000)

CALCULATION OF NCI
AT DEC 31, YEAR 6
Ordinary shares-Storm $ 240,000
Retained earnings-Storm $ 190,000
$ 430,000
NCI's ownership 30%
$ 129,000
NCI's share of remaining acquisition differential:
(30%*24,000+15,300) $ 22,500
$ 151,500

CALCULATION OF CONSOLIDATED RETAINED EARNINGS

AT DEC 31, YEAR 6
Retained earnings - Palm
Retained earnings - Storm
Retained earnings - Storm, acquisition date
Increase since acquisition
Grant's ownership
Parent's share of changes to acquisition differential:
(70%*[18K+6K]+53,900)
Consolidated retained earnings

CALCULATION OF SHAREHOLDERS' EQUITY

AT DEC 31, YEAR 6
Ordinary shares $ 540,000
Retained earnings $ 153,500
NCI $ 151,500
$ 845,000
rks:
NCI's 30% Total 100%

$ 500,000
$ 150,000

$ 97,200 $ 324,000
$ 52,800 $ 176,000

$ 14,400 $ 48,000
$ 38,400 $ 128,000

nges since Acquisition

Year 6 Balance Dec 31, Year 6
$ (6,000) $ 24,000
$ (53,900) $ 35,700
$ (23,100) $ 15,300
$ (77,000) $ 51,000
$ (83,000) $ 75,000

NGS

$ 150,000
$ 190,000
$ 84,000
$ 106,000
70% $ 74,200
$ (70,700)
$ 153,500
Year 3
Investment in Y Co. $ 97,500
Equity method income $ 97,500
75% of the net income of Y Co. (75%*130k)

Cash $ 18,750
Investment in Y Co. $ 18,750
75% of the dividends received from Y Co. (75%*25k)

Equity method income $ 13,500

Investment in Y Co. $ 13,500
To hold back 75% of the after-tax inventory profit recorded by Y Co. (75%*30,000*60%)

Equity Method Income $ 22,200

Investment in Y Co. $ 22,200
To hold back 75% of the after-tax land profit recorded by X Co. ([112k-75k]*60%)

Equity Method Income $ 47,250

Investment in Y Co. $ 47,250
To record X's share in changes in acquisition differential during Year 3 (75%*[60k+45k/15)

YEAR 4
Investment in Y Co. $ 12,000
Equity method income $ 12,000
75% of the net loss of Y Co. (75%*13k)

Cash $ 3,750
Investment in Y Co. $ 3,750
75% of the dividends received from Y Co. (75%*5k)

Equity method income $ 2,250

Investment in Y Co. $ 2,250
To record X's changes in equipment acquisition differential (75%*3k)

Investment in Y Co. $ 13,500

Equity method income $ 13,500
To realize opening inventory profit held back in previous year

Investment in Y Co. $ 22,200

Equity method income $ 22,200
To realize land profit held back in previous year
Equity method income $ 7,200
Investment in Y Co. $ 7,200
To hold back after-tax inventory profit recorded by X
 CALCULATION OF CONSOLIDATED PROFIT
YEAR 3
Profit of X
Less:
Unrealized after-tax gain in land (downstream)
Adjusted profit
Profit of Y $ 130,000
Less:
Unrealized after-tax profit in ending inventory (upstream) $ 18,000
Amortization of acquisition differential $ 63,000 $ 81,000
Adjusted profit
Profit
Attributable to:
Shareholders of X
NCI (25%*49k)

CALCULATION OF CONSOLIDATED PROFIT

YEAR 4
Profit of X
Less:
Unrealized after-tax profit in ending inventory profit (downstream)
Add:
Realized after-tax gain in land (downstream)
Adjusted profit
Net loss of Y $ (16,000)
Add: Realized after-tax profit in opening inventory profit (upstream) $ 18,000 $ 2,000
Less: Amortization of acquisition differential $ 3,000
Adjusted profit
Profit
Attributable to:
Shareholders of X
NCI (25%*-1k)
$ 400,000

$ 22,200
$ 377,800

$ 49,000
$ 426,800

$ 414,550
$ 12,250

$ 72,000

$ 7,200
$ 64,800
$ 22,200
$ 87,000

$ (1,000)
$ 86,000

$ 86,250
$ (250)
 CALCULATION OF NCI
YEAR 3
NCI, Jan 1, Yr 3 $ 68,750
 CALCULATION OF ACQUISITION DIFFERENTIAL
Cost of acquiring 70% of Sand at Jan 1, Year 2 $ 84,000
Implied value of 100% of Sand $ 120,000
CA of net assets at date of acquisition $ 80,000
Acquisition differential $ 40,000
Allocated to:
Inventory $ (9,000)
Equipment $ 24,000 $ 15,000
Goodwill $ 25,000

CALCULATION OF CHANGES IN ACQUISITION DIFFERENTIAL

Changes in acquisition differential
Balance Jan ,1 Yr2 To end of Year 4
Inventory $ (9,000) $ 9,000
Equipment (6 years) $ 24,000 $ (12,000)
Goodwill $ 25,000 $ -
$ 40,000 $ (3,000)
N DIFFERENTIAL
es in acquisition differential
Year 5 Balance Dec 31, Yr5
$ -
$ (4,000) $ 8,000
$ (21,500) $ 3,500
$ (25,500) $ 11,500
 PALM INC.
CONSOLIDATED INCOME STATEMENT
For the year ended December 31, Year 5
Sales $ 998,000
Investment and interest income $ 900
$ 998,900
COGS $ 590,500
Interest expense $ 7,300
R&D expenses $ 56,000
Miscellaneous expenses $ 135,100
Income Taxes $ 99,800
Total expenses $ 888,700
Profit $ 110,200
Attributable to:
Shareholders of Palm $ 107,050
NCI $ 3,150

Supporting schedules:

INTERCOMPANY TRANSACTIONS
Management fee revenue and expense
Interest revenue and expense
Equity method income from Sand
Intercompany sales (downstream)
Before Tax
Unrealized in ending inventory (30k*35%) $ 10,500
Unrealized gain on sale of land in Year 5 (45k - 20k)-Sand selling (upstream) $ 25,000
 $ 24,000
$ 2,700
$ 1,050
$ 100,000
40% Tax After Tax
$ 4,200 $ 6,300
$ 10,000 $ 15,000
(i)
(ii)
(iii)
(iv)
(v)