Question

In December 31, Year 3, Mueller Corp. acquired 80% of the outstanding shares of Wilson Inc. for a total cost of $272,000. The carrying amount of Wilson’s assets, liabilities, and equity was equal to fair value except for the following: Carrying amount Fair Value Inventory 61300 70600 Equipment, net 283,000 289,000 Patent 42,600 Long-term debt 193,000 162,600 Common shares 188,000 ? Retained earnings 44,600 ? As at December 31, Year 3, the equipment and patent had an estimated useful life of six and eight years, respectively. The long-term debt is due on January 1, Year 9. There was a goodwill impairment loss of $3,000 in Year 5. There were no other impairment losses. Mueller uses the cost method to account for its investment in Wilson. The book values of selected accounts for the year ended December 31, Year 7 were as follows: Mueller Wilson Dividend income 13,300 Net income 64,600 28,600 Common shares 106,500 188,000 Retained earnings 276,000 136,000 Required: (a) Prepare a schedule of changes to the acquisition differential for the four year period ending December 31, Year 7. (Leave no cells blank - be certain to enter "0" wherever required. Omit $ sign in your response. Negative/Deductible amounts should be indicated by a minus sign.) Balance Dec. 1 yr 3 Changes yr 4, 5 &6 Changes yr 7 Balance Dec. 31 yr 7 Inventory Equipment (6 years) Patents (8 years) Long-term debt (5 years) Goodwill Total (b) Calculate consolidated net income attributable to the parent, ending retained earnings and non-controlling interest at December 31, Year 7. (Omit $ sign in your response.) Consolidated net income attributable to the parent Consolidated retained earnings Non-controlling interest

Answer 1

(a) Schedule of changes to the acquisition differential:

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Balance Dec. 1 yr 3 Changes yr 4, 5 & 6 Changes yr 7 Balance Dec. 31 yr 7 Inventory 6,300 9,300 3,300 15,900 Equipment (6 years) 0 -1,000 0 -1,000 Patents (8 years) 0 3,300 4,300 7,600 Long-term debt (5 years) -30,400 -11,600 11,400 -30,600 Goodwill 0 0 0 0 Total (Differential) -24,100 0 18,000 -8,100

(b) Consolidated net income attributable to the parent:

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Net income of Mueller Corp. = $64,600 Dividend income from Wilson Inc. = $13,300 Consolidated net income attributable to the parent = Net income of Mueller Corp. +