MAX Inc. purchased 80% of the voting shares of MIN Inc for $750,000 on January 1, 2018. On that date, MAX's common shares and retained earnings were valued at $300,000 and $150,000 respectively. Unless otherwise stated, assume that MAX uses the cost method to account for its investment in MIN Inc.MIN's fair values approximated its carrying values with the following exceptions:MIN's trademark had a fair value which was $80,000 higher than its carrying value.MIN's bonds payable had a fair value which was $30,000 higher than their carrying value.The trademark had a useful life of exactly twenty years remaining from the date of acquisition. The bonds payable mature on January 1, 2038. Both companies use straight line amortization exclusively.The financial statements of both companies for the year ended December 31, 2020 are shown below:Income Statements MAX Inc. MNN Inc. Sales $ 640 , 000 $ 520 , 000 Other Revenues $ 360 , 000 $ 160 , 000 Less: Expenses Cost of Goods Sold $ 480 , 000 $ 390 , 000 Depreciation Expense $ 40 , 000 $ 20 , 000 Other Expenses $ 80 , 000 $ 40 , 000 Income Tax Expense $ 250 , 000 $ 115 , 000 Net Income $ 250 , 000 $ 115 , 000 \begin{array}{|l|r|r|}\hline & ext { MAX Inc. } & ext { MNN Inc. } \\hline ext { Sales } & \$ 640,000 & \$ 520,000 \\hline ext { Other Revenues } & \$ 360,000 & \$ 160,000 \\hline ext { Less: Expenses } & & \\hline ext { Cost of Goods Sold } & \$ 480,000 & \$ 390,000 \\hline ext { Depreciation Expense } & \$ 40,000 & \$ 20,000 \\hline ext { Other Expenses } & \$ 80,000 & \$ 40,000 \\hline ext { Income Tax Expense } & \$ 250,000 & \$ 115,000 \\hline ext { Net Income } & \$ 250,000 & \$ 115,000\\hline\end{array} Sales Other Revenues Less: Expenses Cost of Goods Sold Depreciation Expense Other Expenses Income Tax Expense Net Income MAX Inc. $640 , 000 $360 , 000 $480 , 000 $40 , 000 $80 , 000 $250 , 000 $250 , 000 MNN Inc. $520 , 000 $160 , 000 $390 , 000 $20 , 000 $40 , 000 $115 , 000 $115 , 000 Retained Earnings Statements MAX Inc. MNN Inc. Balance, January 1, 2020 $ 200 , 000 $ 350 , 000 Net Income $ 250 , 000 $ 115 , 000 Less: Dividends ( $ 50 , 000 ) ( $ 65 , 000 ) Retained Earnings, Dec 31,2020 $ 400 , 000 $ 400 , 000 Balance Sheets MAX Inc. MIN Inc. Cash $ 100 , 000 $ 150 , 000 Accounts Receivable $ 150 , 000 $ 150 , 000 Inventory $ 200 , 000 $ 150 , 000 Investment in MIN Inc. $ 750 , 000 Equipment (net) $ 300 , 000 $ 150 , 000 Land $ 100 , 000 Trademark $ 300 , 000 Total Assets $ 1 , 500 , 000 $ 1 , 000 , 000 Current Liabilities $ 300 , 000 $ 150 , 000 Bonds Payable $ 300 , 000 $ 150 , 000 Common Shares $ 500 , 000 $ 300 , 000 Retained Earnings $ 400 , 000 $ 400 , 000 Total Liabilities and Equity $ 1 , 500 , 000 $ 1 , 000 , 000 \begin{array}{|l|r|r|}\hline & ext { MAX Inc. } & ext { MNN Inc. } \\hline ext { Balance, January 1, 2020 } & \$ 200,000 & \$ 350,000 \\hline ext { Net Income } & \$ 250,000 & \$ 115,000 \\hline ext { Less: Dividends } & (\$ 50,000) & (\$ 65,000) \\hline ext { Retained Earnings, Dec 31,2020 } & \$ 400,000 & \$ 400,000 \\hline ext { Balance Sheets } & \\hline & ext { MAX Inc. } & ext { MIN Inc. } \\hline ext { Cash } & \$ 100,000 & \$ 150,000 \\hline ext { Accounts Receivable } & \$ 150,000 & \$ 150,000 \\hline ext { Inventory } & \$ 200,000 & \$ 150,000 \\hline ext { Investment in MIN Inc. } & \$ 750,000 & \\hline ext { Equipment (net) } & \$ 300,000 & \$ 150,000 \\hline ext { Land } & & \$ 100,000 \\hline ext { Trademark } & & \$ 300,000 \\hline ext { Total Assets } & \$ 1,500,000 & \$ 1,000,000 \\hline ext { Current Liabilities } & \$ 300,000 & \$ 150,000 \\hline ext { Bonds Payable } & \$ 300,000 & \$ 150,000 \\hline ext { Common Shares } & \$ 500,000 & \$ 300,000 \\hline ext { Retained Earnings } & \$ 400,000 & \$ 400,000 \\hline ext { Total Liabilities and Equity } & \$ 1,500,000 & \$ 1,000,000\\hline\end{array} Balance, January 1, 2020 Net Income Less: Dividends Retained Earnings, Dec 31,2020 Balance Sheets Cash Accounts Receivable Inventory Investment in MIN Inc. Equipment (net) Land Trademark Total Assets Current Liabilities Bonds Payable Common Shares Retained Earnings Total Liabilities and Equity MAX Inc. $200 , 000 $250 , 000 ( $50 , 000 ) $400 , 000 MAX Inc. $100 , 000 $150 , 000 $200 , 000 $750 , 000 $300 , 000 $1 , 500 , 000 $300 , 000 $300 , 000 $500 , 000 $400 , 000 $1 , 500 , 000 MNN Inc. $350 , 000 $115 , 000 ( $65 , 000 ) $400 , 000 MIN Inc. $150 , 000 $150 , 000 $150 , 000 $150 , 000 $100 , 000 $300 , 000 $1 , 000 , 000 $150 , 000 $150 , 000 $300 , 000 $400 , 000 $1 , 000 , 000 Other Information:A goodwill impairment test conducted during August 2020 revealed that the MIN's goodwill amount on the date of acquisition had been impaired by $5,000.During 2019, MAX sold $60,000 worth of inventory to MIN, 80% of which was sold to outsiders during the year. During 2020, MAX sold inventory to MIN for $80,000. 75% of this inventory was resold by MIN to outside parties during that year.During 2019, MIN sold $40,000 worth of Inventory to MAX, 80% of which was sold to outsiders during the year. During 2020, MIN sold inventory to MAX for $50,000. 80% of this inventory was resold by MAX to outside parties during that year.On April 1, 2020, MAX sold land to MIN for $100,000. MAX originally acquired the land for $40,000 in 2015.All intercompany sales as well as sales to outsiders are priced 25% above cost. The effective tax rate for both companies is 50%.Prepare MAX's Consolidated Statement of Financial Position as at December 31, 2020.

Question

MAX Inc. purchased 80% of the voting shares of MIN Inc for $750,000 on January 1, 2018. On that date, MAX's common shares and retained earnings were valued at $300,000 and $150,000 respectively. Unless otherwise stated, assume that MAX uses the cost method to account for its investment in MIN Inc.MIN's fair values approximated its carrying values with the following exceptions:MIN's trademark had a fair value which was $80,000 higher than its carrying value.MIN's bonds payable had a fair value which was $30,000 higher than their carrying value.The trademark had a useful life of exactly twenty years remaining from the date of acquisition. The bonds payable mature on January 1, 2038. Both companies use straight line amortization exclusively.The financial statements of both companies for the year ended December 31, 2020 are shown below:Income Statements  MAX Inc.   MNN Inc.   Sales  $ 640 , 000 $ 520 , 000  Other Revenues  $ 360 , 000 $ 160 , 000  Less: Expenses   Cost of Goods Sold  $ 480 , 000 $ 390 , 000  Depreciation Expense  $ 40 , 000 $ 20 , 000  Other Expenses  $ 80 , 000 $ 40 , 000  Income Tax Expense  $ 250 , 000 $ 115 , 000  Net Income  $ 250 , 000 $ 115 , 000 \begin{array}{|l|r|r|}\hline  &  	ext { MAX Inc. }  &  	ext { MNN Inc. } \\hline 	ext { Sales }  &  \$ 640,000  &  \$ 520,000 \\hline 	ext { Other Revenues }  &  \$ 360,000  &  \$ 160,000 \\hline 	ext { Less: Expenses }  &   &  \\hline 	ext { Cost of Goods Sold }  &  \$ 480,000  &  \$ 390,000 \\hline 	ext { Depreciation Expense }  &  \$ 40,000  &  \$ 20,000 \\hline 	ext { Other Expenses }  &  \$ 80,000  &  \$ 40,000 \\hline 	ext { Income Tax Expense }  &  \$ 250,000  &  \$ 115,000 \\hline 	ext { Net Income }  &  \$ 250,000  &  \$ 115,000\\hline\end{array}  Sales   Other Revenues   Less: Expenses   Cost of Goods Sold   Depreciation Expense   Other Expenses   Income Tax Expense   Net Income  ​  MAX Inc.  $640 , 000 $360 , 000 $480 , 000 $40 , 000 $80 , 000 $250 , 000 $250 , 000 ​  MNN Inc.  $520 , 000 $160 , 000 $390 , 000 $20 , 000 $40 , 000 $115 , 000 $115 , 000 ​ ​   Retained Earnings Statements  MAX Inc.   MNN Inc.   Balance, January 1, 2020  $ 200 , 000 $ 350 , 000  Net Income  $ 250 , 000 $ 115 , 000  Less: Dividends  ( $ 50 , 000 ) ( $ 65 , 000 )  Retained Earnings, Dec 31,2020  $ 400 , 000 $ 400 , 000  Balance Sheets   MAX Inc.   MIN Inc.   Cash  $ 100 , 000 $ 150 , 000  Accounts Receivable  $ 150 , 000 $ 150 , 000  Inventory  $ 200 , 000 $ 150 , 000  Investment in MIN Inc.  $ 750 , 000  Equipment (net)  $ 300 , 000 $ 150 , 000  Land  $ 100 , 000  Trademark  $ 300 , 000  Total Assets  $ 1 , 500 , 000 $ 1 , 000 , 000  Current Liabilities  $ 300 , 000 $ 150 , 000  Bonds Payable  $ 300 , 000 $ 150 , 000  Common Shares  $ 500 , 000 $ 300 , 000  Retained Earnings  $ 400 , 000 $ 400 , 000  Total Liabilities and Equity  $ 1 , 500 , 000 $ 1 , 000 , 000 \begin{array}{|l|r|r|}\hline  &  	ext { MAX Inc. }  &  	ext { MNN Inc. } \\hline 	ext { Balance, January 1, 2020 }  &  \$ 200,000  &  \$ 350,000 \\hline 	ext { Net Income }  &  \$ 250,000  &  \$ 115,000 \\hline 	ext { Less: Dividends }  &  (\$ 50,000)  &  (\$ 65,000) \\hline 	ext { Retained Earnings, Dec 31,2020 }  &  \$ 400,000  &  \$ 400,000 \\hline 	ext { Balance Sheets }  &  \\hline  &  	ext { MAX Inc. }  &  	ext { MIN Inc. } \\hline 	ext { Cash }  &  \$ 100,000  &  \$ 150,000 \\hline 	ext { Accounts Receivable }  &  \$ 150,000  &  \$ 150,000 \\hline 	ext { Inventory }  &  \$ 200,000  &  \$ 150,000 \\hline 	ext { Investment in MIN Inc. }  &  \$ 750,000  &  \\hline 	ext { Equipment (net) }  &  \$ 300,000  &  \$ 150,000 \\hline 	ext { Land }  &   &  \$ 100,000 \\hline 	ext { Trademark }  &   &  \$ 300,000 \\hline 	ext { Total Assets }  &  \$ 1,500,000  &  \$ 1,000,000 \\hline 	ext { Current Liabilities }  &  \$ 300,000  &  \$ 150,000 \\hline 	ext { Bonds Payable }  &  \$ 300,000  &  \$ 150,000 \\hline 	ext { Common Shares }  &  \$ 500,000  &  \$ 300,000 \\hline 	ext { Retained Earnings }  &  \$ 400,000  &  \$ 400,000 \\hline 	ext { Total Liabilities and Equity }  &  \$ 1,500,000  &  \$ 1,000,000\\hline\end{array}  Balance, January 1, 2020   Net Income   Less: Dividends   Retained Earnings, Dec 31,2020   Balance Sheets   Cash   Accounts Receivable   Inventory   Investment in MIN Inc.   Equipment (net)   Land   Trademark   Total Assets   Current Liabilities   Bonds Payable   Common Shares   Retained Earnings   Total Liabilities and Equity  ​  MAX Inc.  $200 , 000 $250 , 000 ( $50 , 000 ) $400 , 000  MAX Inc.  $100 , 000 $150 , 000 $200 , 000 $750 , 000 $300 , 000 $1 , 500 , 000 $300 , 000 $300 , 000 $500 , 000 $400 , 000 $1 , 500 , 000 ​  MNN Inc.  $350 , 000 $115 , 000 ( $65 , 000 ) $400 , 000  MIN Inc.  $150 , 000 $150 , 000 $150 , 000 $150 , 000 $100 , 000 $300 , 000 $1 , 000 , 000 $150 , 000 $150 , 000 $300 , 000 $400 , 000 $1 , 000 , 000 ​ ​   Other Information:A goodwill impairment test conducted during August 2020 revealed that the MIN's goodwill amount on the date of acquisition had been impaired by $5,000.During 2019, MAX sold $60,000 worth of inventory to MIN, 80% of which was sold to outsiders during the year. During 2020, MAX sold inventory to MIN for $80,000. 75% of this inventory was resold by MIN to outside parties during that year.During 2019, MIN sold $40,000 worth of Inventory to MAX, 80% of which was sold to outsiders during the year. During 2020, MIN sold inventory to MAX for $50,000. 80% of this inventory was resold by MAX to outside parties during that year.On April 1, 2020, MAX sold land to MIN for $100,000. MAX originally acquired the land for $40,000 in 2015.All intercompany sales as well as sales to outsiders are priced 25% above cost. The effective tax rate for both companies is 50%.Prepare MAX's Consolidated Statement of Financial Position as at December 31, 2020.

Anushka Gupta · Accepted Answer

Final Answer :  MAX IncConsolidated Statement of Financial Positionas at December 31, 2017  Cash  ( $ 100 , 000 + $ 150 , 000 ) $ 250 , 000  Accounts Receivable  ( $ 150 , 000 + $ 150 , 000 ) $ 300 , 000  Inventory  ( $ 200 , 000 + $ 150 , 000 − $ 4 , 000 − $ 2 , 000 ) $ 344 , 000  Goodwill  $ 432 , 500  Equipment (net)  ( $ 300 , 000 + $ 150 , 000 ) $ 450 , 000  Land ($100,000-  $ 60 , 000 ) $ 40 , 000  Trademark  ( $ 300 , 000 + $ 68 , 000 ) $ 368 , 000  Deferred Income Taxes  ( $ 1 , 000 + $ 2 , 000 + $ 30 , 000 ) $ 33 , 000  Total Assets  $ 2 , 217 , 500  Current Liabilities  ( $ 300 , 000 + $ 150 , 000 ) $ 450 , 000  Bonds Payable  ( $ 300 , 000 + $ 150 , 000 + $ 25 , 500 ) $ 475 , 500  Non-Controlling Interest  $ 234 , 800  Common Shares  $ 500 , 000  Retained Earnings  $ 557 , 200  Total Liabilities and Equity  $ 2 , 217 , 500 \begin{array}{|l|r|}\hline 	ext { Cash }(\$ 100,000+\$ 150,000)  &  \$ 250,000 \\hline 	ext { Accounts Receivable }(\$ 150,000+\$ 150,000)  &  \$ 300,000 \\hline 	ext { Inventory }(\$ 200,000+\$ 150,000-\$ 4,000-\$ 2,000)  &  \$ 344,000 \\hline 	ext { Goodwill }  &  \$ 432,500 \\hline 	ext { Equipment (net) }(\$ 300,000+\$ 150,000)  &  \$ 450,000 \\hline 	ext { Land (\$100,000- } \$ 60,000)  &  \$ 40,000 \\hline 	ext { Trademark }(\$ 300,000+\$ 68,000)  &  \$ 368,000 \\hline 	ext { Deferred Income Taxes }(\$ 1,000+\$ 2,000+\$ 30,000)  &  \$ 33,000 \\hline 	ext { Total Assets }  &  \$ 2,217,500 \\hline 	ext { Current Liabilities }(\$ 300,000+\$ 150,000)  &  \$ 450,000 \\hline 	ext { Bonds Payable }(\$ 300,000+\$ 150,000+\$ 25,500)  &  \$ 475,500 \\hline 	ext { Non-Controlling Interest }  &  \$ 234,800 \\hline 	ext { Common Shares }  &  \$ 500,000 \\hline 	ext { Retained Earnings }  &  \$ 557,200 \\hline 	ext { Total Liabilities and Equity }  &  \$ 2,217,500\\hline\end{array}  Cash  ( $100 , 000 + $150 , 000 )  Accounts Receivable  ( $150 , 000 + $150 , 000 )  Inventory  ( $200 , 000 + $150 , 000 − $4 , 000 − $2 , 000 )  Goodwill   Equipment (net)  ( $300 , 000 + $150 , 000 )  Land ($100,000-  $60 , 000 )  Trademark  ( $300 , 000 + $68 , 000 )  Deferred Income Taxes  ( $1 , 000 + $2 , 000 + $30 , 000 )  Total Assets   Current Liabilities  ( $300 , 000 + $150 , 000 )  Bonds Payable  ( $300 , 000 + $150 , 000 + $25 , 500 )  Non-Controlling Interest   Common Shares   Retained Earnings   Total Liabilities and Equity  ​ $250 , 000 $300 , 000 $344 , 000 $432 , 500 $450 , 000 $40 , 000 $368 , 000 $33 , 000 $2 , 217 , 500 $450 , 000 $475 , 500 $234 , 800 $500 , 000 $557 , 200 $2 , 217 , 500 ​ ​

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