Case3 S2012 Q - CASE 3 Use the following information to...

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Unformatted text preview: CASE 3 Use the following information to answer questions 1 through 6. . Jan 1, 2005, Big Sky, 3 December year-end firm, sold 8%, $100,000, 5-year bond to Polar Bear (not affiliated firm) when the market rate was 9%. Jan 1, 2006, Galaxy, a December year-end firm, purchased 60% of outstanding common shares of Big Sky for $540,000. On this date, Big Sky’s shareholders’ equity was $570,000 ($350,000 common shares and $220,000 retained earnings). . 0n the acquisition date, Big Sky’s assets and liabilities’ market values were equal to their book values except a building with a remaining life of 5 years and a market value that was greater than its book value by $35,000. The building is depreciated using the straight-line method. . Jan 1, 2007, Galaxy purchased a truck with a book value of $300,000 from Big Sky for $375,000 (no residual value). The remaining useful life of the truck is 5 years and is depreciated on a straight-line basis. . Jan 1, 2007, Galaxy purchased Big Sky’s bond from Polar Bear when the market rate was 10%. Galaxy reported net incomes (cash dividends) of $250,000 ($30,000), $280,000 ($15,000), and $315,000 ($20,000) for 2006, 2007, and 2008, respectively. Big Sky reported net incomes of $90,000, $108,000, and $120,000 for 2006, 2007, and 2008, respectively and paid no dividends since the acquisition. . Both firms are subjected to 40% tax rate for 2005, 2006, 2007, and 2008. . There were no other transactions between the two companies since the acquisition date except those listed above. Requirements: 1. .N P291539” The bond retirement gain that should be reported on the consolidated income statement for 2007. The bond retirement gain or loss that was allocated to Galaxy (the purchasing firm) and Big Sky (the issuing firm) on Jan 1, 2007. The consolidated net income for the group (Galaxy and Big Sky) for 2007. The non-controlling interest in Big Sky’s equity on Dec 31, 2007. The consolidated net income for the group (Galaxy and Big Sky) for 2008. The balance of consolidated retained earning on Dec 31, 2008 assuming the balance of the parent retained earnings on Jan 1, 2006 was $320,000. ...
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