Assignment Task
Required information
Prince Inc. (Prince) purchased 90% of the voting shares of Charming Company (Charming) for $720,000 on July 1, 2020. On that date, Charming’s common shares and retained earnings were valued at $200,000 and $400,000, respectively. Unless otherwise stated, assume that Prince uses the cost method to account for its investment in Charming. Prince uses the fair value enterprise method to value the non-controlling interest.
Charming’s fair values approximated its carrying values with the exception of the following:
Charming’s bonds payable had a fair value which was $50,000 higher than their carrying value. The bonds payable mature on July 1, 2030. Both companies use straight line amortization.
The financial statements of both companies for the year ended June 30, 2023 are shown below:
Income Statements
| Price Inc. | Charming Company | |
| Sales | $500,000 | $400,000 |
| Other revenues | 100,000 | 60,000 |
| Less: Expenses | ||
| Cost of goods sold | 400,000 | 320,000 |
| Depreciation/amortization expense | 20,000 | 10,000 |
| Other expenses | 60,000 | 30,000 |
| Income tax expense | 48,000 | 40,000 |
| Net Income | $72,000 | $60,000 |
Retained Earnings Statements
| Prince Inc. | Charming Company | |
| Balance, July 1, 2022 | $420,000 | $240,000 |
| Net income | 72,000 | 60,000 |
| Less: dividends | (22,000) | (30,000) |
| Retained earnings, June 30, 2023 | $470,000 |
$270,000 |
Balance sheets
| Prince Inc. |
Charming Company |
|
| Cash | $150,000 |
$120,000 |
| Accounts receivable |
350,000 |
160,000 |
| Inventory | 200,000 |
180,000 |
| Investment in Charming. |
720,000 | – |
| Land | 40,000 | – |
| Equipment (net) |
360,000 | 240,000 |
| Total assets |
$1,820,000 |
$700,000 |
| Current liabilities |
$600,000 |
$130,000 |
| Bonds payable | 250,000 | 100,000 |
| Common shares | 500,000 |
200,000 |
| Retained earnings |
470,000 |
270,000 |
| Total liabilities and equity |
$1,820,000 |
$700,000 |
Other Information:
• During August of 2021, Prince sold $60,000 worth of inventory to Charming, 80% of which was sold to outsiders during the year. During October of 2022, Prince sold inventory to Charming for $90,000 of which 65% of this inventory was resold by Charming to outside parties in June 2023.
• During September of 2021, Charming sold $90,000 worth of inventory to Prince, 50% of which was sold to outsiders during the year. During April of 2023, Charming sold Inventory to Prince for $120,000. 80% of this Inventory was resold by Prince to outside parties in May 2023.
• During May of 2023, Charming sold a plot of land to Prince for $40,000. The land was recorded at cost of $24,000 on Charming’s books prior to the sale. Prince has not yet sold the land.
• Charming rents office space from Prince. The other expenses include rent expenses of $20,000.
The rate of gross profit on all intercompany sales is 25% of sales. The effective tax rate for both companies is 40%. Assume that any gain on the sale of land is fully taxable.
a. Compute a Statement of Consolidated Net Income for Prince Inc. for the Year Ended June 30, 2023, and the computation of the profit attributable to Non-Controlling Interests (NCI).
b. Prepare Prince’s consolidated income statement for the year ended June 30, 2023, showing the allocation of the consolidated net income between the controlling and non-controlling interests (NCI).
Calculate the non-controlling interest (Balance Sheet) as at June 30, 2023.
Prepare in good form the consolidated balance sheet of Prince Inc as at June 30, 2023.
a. Prepare a Statement of Computation and Allocation of Acquisition Differential showing the allocation of Acquisition Differential to the Fair Market Value Increments and Goodwill (if any).
b. What is the balance of Non-Controlling Interests (NCI) on the date of the acquisition?
c. Prepare an Amortization / Impairment Schedule, in good form, for the Year Ended June 30th 2023
Calculate consolidated retained earnings as at June 30, 2023
Calculate the non-controlling interest (Balance Sheet) as at June 30, 2023.
a. Prepare a schedule of Realized / Unrealized Profits on Inter-Company Sale / Purchase of Inventory detailing the realized and unrealized before-tax and after-tax profits for 2023
b. Prepare a schedule of Gains or Losses on Inter-company sales of Land for 2023