Brand X Inc The Balance Sheets of Both Companies, as at December 31

question 46

Essay

Brand X Inc. purchased a controlling interest in Brand Y Inc. on January 1, 2017. On that date, Brand Y Inc. had common shares and retained earnings worth $180,000 and $20,000, respectively. Goodwill is tested annually for impairment. At the date of acquisition, Brand Y's assets and liabilities were assessed for fair value as follows: $\begin{array}{|l|l|}\hline \text { Inventory } & \$ 5,000 \text { less than book value } \\\hline \text { Equipment } & \$ 30,000 \text { less than book value } \\\hline \text { Patent } & \$ 24,000 \text { greater than fair value } \\\hline \text { Bonds Pay able } & \$ 5,000 \text { less than book value } \\\hline\end{array}$ The balance sheets of both companies, as at December 31, 2017 are disclosed below:
$$\begin{array} { | l | l | l | } \hline & \text { Brand } \times \text { Inc } & \text { Brand Y Inc } \\\hline \text { Cash } & \$ 200,000 & \$ 45,000 \\\hline \text { Accounts Receivable } & \$ 100,000 & \$ 40,000 \\\hline \text { Inventory } & \$ 80,000 & \$ 56,000 \\\hline \text { Equipment (net) } & \$ 220,000 & \$ 100,000 \\\hline \text { Patent } & & \$ 60,000 \\\hline \text { Imestment in Brand Y } & \$ 348,000 & \\\hline \text { Total Assets } & \$ 948,000 & \$ 300,000 \\\hline & & \\\hline \text { Current Liabilities } & \$ 480,000 & \$ 53,000 \\\hline \text { Bonds Payable } & \$ 270,000 & \$ 50,000 \\\hline \text { Common Shares } & \$ 100,000 & \$ 180,000 \\\hline \text { Retained Earnings } & \$ 98,000 & \$ 19,000 \\\hline \text { Total Labilities and Equity } & \$ 948,000 & \$ 300,000 \\\hline\\\hline\end{array}$$ The net incomes for Brand X and Brand Y for the year ended December 31, 2017 were $1,000 and $50,000 respectively. An impairment test conducted on December 31, 2017 revealed that the Goodwill should actually have a value $2,000 lower than the amount calculated on the date of acquisition. Both companies use a FIFO system, and Brand Y's inventory on the date of acquisition was sold during the year. Brand X did not declare any dividends during the year. However, Brand Y paid $51,000 in dividends to make up for several years in which the company had never paid any dividends. Brand Y's equipment and patent have useful lives of 10 years and 6 years respectively from the date of acquisition. All bonds payable mature on January 1, 2022.
Prepare Brand X's consolidated balance sheet as at December 31, 2017, assuming that Brand X purchased 80% of Brand Y for $350,000 and accounts for its investment using the equity method.

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