Reference no: EM13495479

Problem 1

At the beginning of 20X2, Dahl Ltd. acquired 8% of the outstanding common shares of Tippy Ltd. for $400,000.  This amounted to 80,000 shares. 

At the beginning of 20X4, Dahl acquired an additional 270,000 shares of Tippy for $1,512,000.  At this acquisition date, Tippy's shareholders' equity consisted of the following:

          4% non-cumulative preferred shares                     $1,000,000
          Common shares, 1,000,000 outstanding shares      2,400,000
          Retained earnings                                                   2,160,000

At this acquisition date, the fair values of the net identifiable assets equalled their carrying values except for the following:

                                                          Excess of fair value
                                                          over carrying value

                             Inventory                        $  96,000

                             Land                                 800,000

At the beginning of 20X5, Dahl acquired an additional 450,000 shares of Tippy for 2,880,000.  The shares were trading for $6 per share.  At this acquisition date, Tippy's shareholders' equity consisted of the following:

          4% non-cumulative preferred shares                     $1,000,000
          Common shares, 1,000,000 outstanding shares      2,400,000
          Retained earnings                                                   2,560,000

At this acquisition date, the fair values of the net identifiable assets equalled their carrying values except for the following:

                                                          Excess of fair value over/(under)
                                                                   carrying value

                   Accounts receivable                      $W(48,000)
                   Building and equipment (net)            720,000

                   Long-term debt                        160,000

The building and equipment have an estimated remaining life of 10 years and the long-term debt matures in 10 years.

The condensed separate-entity financial statements for December 31, 20X6 are as follows:

Balance Sheets

As at December 31, 20X6

	Dahl Ltd.	Tippy Ltd.
Assets:
Cash	$      400,000	$    560,000
Accounts receivable	1,920,000	440,000
Inventories	400,000	320,000
Land	4,400,000	800,000
Buildings and equipment (net)	8,488,000	7,200,000
Investment in Tippy (at cost)	4,792,000	____-____
Total assets	$ 20,400,000	$ 9,320,000
Liabilities:
Accounts payable	$   2,400,000	$    400,000
Long-term debt	3,200,000	1,600,000
Total liabilities	5,600,000	2,000,000
Shareholders' equity:
4% non-cumulative preferred shares	-	1,000,000
Common shares	7,200,000	2,400,000
Retained earnings	7,600,000	3,920,000
Total shareholders' equity	14,800,000	7,320,000
Total liabilities and shareholders' equity	$ 20,400,000	$ 9,320,000

Income Statements

Year Ended December 31, 20X6

	Dahl Ltd.	Tippy Ltd.
Sales	$ 12,000,000	$ 7,200,000
Dividend income	96,000	-
Gain on sale of equipment	_______	168,000
Total revenue	12,096,000	7,368,000
Cost of goods sold	7,600,000	4,960,000
Operating expenses	2,374,400	944,000
Income tax expense	825,600	584,000
Total expenses	10,800,000	6,488,000
Net income	$  1,296,000	$    880,000

Additional information:

• Dahl and Tippy declared and paid dividends during 20X6 of $400,000 and $160,000, respectively.
• At the end of 20X5, the inventories of Dahl and Tippy included goods with intercompany profits of $68,000 and $152,000 respectively.
• During 20X6, Dahl sold goods to Tippy for $3,120,000 at a gross margin of 45%.  At the end of 20X6, $200,000 of these goods were still in Tippy's inventory.
• During 20X6, Tippy sold goods to Dahl for $2,080,000 at a gross margin of 35%.  At the end of the year, $320,000 of these goods were still in Dahl's inventory.
• On January 1, 20X6, Tippy sold some equipment to Dahl for $360,000.  At that time, the equipment had a book value of $192,000 and an estimated remaining life of 8 years.  Dahl has paid Tippy $252,000 and will pay the balance on January 31, 20X7.
• Both Dahl and Tippy use the straight-line method of amortization for their buildings and equipment.
• In 20X5, a goodwill impairment of $73,600 was recognized and a further impairment of $46,400 occurred in 20X6.  Impairment losses are allocated 80% to Dahl and 20% to the non-controlling interest.
• Both companies are taxed at an average rate of 40%.

Required:

Calculate Dahl's 20X6 consolidated net income and identify the amount attributable to Dahl's shareholders and to the non-controlling interest.  Be sure to show all your calculations.  You are not required to prepare a consolidated income statement.