2014 Example of Consolidation Question with Taxes

2014 Example of Consolidation Question with Taxes -...

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Question 1 (32 marks) – IMAGINE YOU ARE IN APRIL 2017 Pony Corp. purchased 70% of the outstanding shares of Sandy Ltd. on January 1, 2013, at a cost of $400,000. Pony has always used the cost method to account for its investments. On January 1, 2013, Sandy had common shares of $250,000 and retained earnings of $150,000 and fair values were equal to carrying values for all its net assets except inventory (fair value was $45,000 less than book value) and equipment (fair value was $120,000 greater than book value). The equipment had an estimated remaining life of 6 years on January 1,2013. The following are the financial statements for Pony Corp. and its subsidiary Sandy Ltd. as at December 31, 2016: Balance Sheet Sheets (Statements of Financial Position) December 31, 2016 Pony Corp. Sandy Ltd. Cash $ - $ 50,000 Accounts receivable 200,000 150,000 Note receivable - 200,000 Inventory 330,000 220,000 Equipment - net 1,100,000 380,000 Land 750,000 150,000 Investment in Sandy Ltd. 400,000 - $ 2,780,000 $ 1,150,000 Bank indebtness $ 450,000 $ - Accounts payable 250,000 300,000 Notes payable 200,000 - Common shares 750,000 250,000 Retained earnings 1,130,000 600,000 $ 2,780,000 $ 1,150,000 Statements of Retained Earnings year ended December 31, 2016 Retained earnings, January 1, 2016 $ 530,000 $ 460,000 Net income 600,000 240,000 Dividends - ( 100,000) Retained earnings, December 31, 2016 $ 1,130,000 $ 600,000 2
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