Par Inc. purchased 70% of the outstanding voting shares of Sub Inc. for $700000 on July 1, 2020. On that date, Sub Inc. had common shares and retained earnings worth $410,000 and $170,000, respectively. The Equipment had a remaining useful life of 5 years from the date of acquisition. Sub's bonds mature on July 1, 2025. The inventory was sold in the year following the acquisition. Both companies use straight line amortization, and no salvage value is assumed for assets. Par Inc. and Sub Inc. declared and paid $10,000 and $5,000 in dividends, respectively during the year.Par Inc. uses the Fair Value Enterprise Method to value the non-controlling interest in Sub Inc. on the acquisition date.The balance sheets of both companies, as well as Sub's fair values immediately following the acquisition are shown below: Par Inc. Sub Inc. Sub Inc. (carrying value) (carrying value) (fair value) Cash $ 600 , 000 $ 515 , 000 $ 515 , 000 Accounts Receivable $ 140 , 000 $ 85 , 000 $ 85 , 000 Inventory $ 60 , 000 $ 45 , 000 $ 60 , 000 Investment in Sub Inc. $ 700 , 000 Equipment (net) $ 50 , 000 $ 180 , 000 $ 185 , 000 Land $ 115 , 000 $ 200 , 000 Total Assets $ 1 , 550 , 000 $ 940 , 000 Current Liabilities $ 100 , 000 $ 280 , 000 $ 280 , 000 Bonds Payable $ 160 , 000 $ 80 , 000 $ 60 , 000 Common Shares $ 800 , 000 $ 410 , 000 Retained Earnings $ 490 , 000 $ 170 , 000 Total Liabilities and Equity $ 1 , 550 , 000 $ 940 , 000 \begin{array}{|l|r|r|r|} \hline & ext { Par Inc. } & ext { Sub Inc. } & ext { Sub Inc. } \\hline & ext { (carrying value) } & ext { (carrying value) } & ext { (fair value) } \\hline ext { Cash } & \$ 600,000 & \$ 515,000 & \$ 515,000 \\hline ext { Accounts Receivable } & \$ 140,000 & \$ 85,000 & \$ 85,000 \\hline ext { Inventory } & \$ 60,000 & \$ 45,000 & \$ 60,000 \\hline ext { Investment in Sub Inc. } & \$ 700,000 & & \\hline ext { Equipment (net) } & \$ 50,000 & \$ 180,000 & \$ 185,000 \\hline ext { Land } & & \$ 115,000 & \$ 200,000 \\hline ext { Total Assets } & \$ 1,550,000 & \$ 940,000 \\hline ext { Current Liabilities } & \$ 100,000 & \$ 280,000 & \$280,000 \\hline ext { Bonds Payable } & \$ 160,000 & \$ 80,000 & \$60,000 \\hline ext { Common Shares } & \$800,000 & \$410,000\\hline ext { Retained Earnings } & \$490,000 & \$170,000\\hline ext { Total Liabilities and Equity } & \$1,550,000 & \$940,000\\hline\end{array} Cash Accounts Receivable Inventory Investment in Sub Inc. Equipment (net) Land Total Assets Current Liabilities Bonds Payable Common Shares Retained Earnings Total Liabilities and Equity Par Inc. (carrying value) $600 , 000 $140 , 000 $60 , 000 $700 , 000 $50 , 000 $1 , 550 , 000 $100 , 000 $160 , 000 $800 , 000 $490 , 000 $1 , 550 , 000 Sub Inc. (carrying value) $515 , 000 $85 , 000 $45 , 000 $180 , 000 $115 , 000 $940 , 000 $280 , 000 $80 , 000 $410 , 000 $170 , 000 $940 , 000 Sub Inc. (fair value) $515 , 000 $85 , 000 $60 , 000 $185 , 000 $200 , 000 $280 , 000 $60 , 000 The following are the financial statements for both companies for the fiscal year ended June 30, 2021:Income Statements Sales $ 800 , 000 $ 300 , 000 Investment Revenue $ 21 , 000 Less: Expenses: Cost of Goods Sold $ 240 , 000 $ 180 , 000 Depreciation $ 10 , 000 $ 20 , 000 Interest Expense $ 12 , 000 $ 40 , 000 Other Expenses $ 8 , 000 $ 10 , 000 Net Income $ 551 , 000 $ 50 , 000 \begin{array}{|l|r|r|}\hline ext { Sales } & \$ 800,000 & \$ 300,000 \\hline ext { Investment Revenue } & \$ 21,000 & \\hline ext { Less: Expenses: } & & \\hline ext { Cost of Goods Sold } & \$ 240,000 & \$ 180,000 \\hline ext { Depreciation } & \$ 10,000 & \$ 20,000 \\hline ext { Interest Expense } & \$ 12,000 & \$ 40,000 \\hline ext { Other Expenses } & \$ 8,000 & \$ 10,000 \\hline ext { Net Income } & \$ 551,000 & \$ 50,000\\hline\end{array} Sales Investment Revenue Less: Expenses: Cost of Goods Sold Depreciation Interest Expense Other Expenses Net Income $800 , 000 $21 , 000 $240 , 000 $10 , 000 $12 , 000 $8 , 000 $551 , 000 $300 , 000 $180 , 000 $20 , 000 $40 , 000 $10 , 000 $50 , 000 Retained Earnings Statements Balance, July 1, 2020 $ 490 , 000 $ 170 , 000 Net Income $ 551 , 000 $ 50 , 000 Dividends $ ( 10 , 000 ) $ ( 5 , 000 ) Balance, June 30 , 2021 $ 1 , 031 , 000 $ 215 , 000 \begin{array}{|l|r|r|}\hline ext { Balance, July 1, 2020 } & \$ 490,000 & \$ 170,000 \\hline ext { Net Income } & \$ 551,000 & \$ 50,000 \\hline ext { Dividends } & \$(10,000) & \$(5,000) \\hline ext { Balance, June } 30,2021 & \$ 1,031,000 & \$ 215,000\\hline\end{array} Balance, July 1, 2020 Net Income Dividends Balance, June 30 , 2021 $490 , 000 $551 , 000 $ ( 10 , 000 ) $1 , 031 , 000 $170 , 000 $50 , 000 $ ( 5 , 000 ) $215 , 000 Balance Sheets Par Inc. Sub Inc. Cash $ 647 , 500 $ 665 , 000 Accounts Receivable $ 250 , 000 $ 35 , 000 Investment in Sub $ 717 , 500 Inventory $ 90 , 000 $ 45 , 000 Equipment (net) $ 750 , 000 $ 170 , 000 Land $ 115 , 000 Total Assets $ 2 , 455 , 000 $ 1 , 030 , 000 Current Liabilities $ 464 , 000 $ 325 , 000 Bonds Payable $ 160 , 000 $ 80 , 000 Common Shares $ 800 , 000 $ 410 , 000 Retained Earnings $ 1 , 031 , 000 $ 215 , 000 Total Liabilities and Equity $ 2 , 455 , 000 $ 1 , 030 , 000 \begin{array}{|l|r|r|}\hline & ext { Par Inc. } & ext { Sub Inc. } \\hline ext { Cash } & \$ 647,500 & \$ 665,000 \\hline ext { Accounts Receivable } & \$ 250,000 & \$ 35,000 \\hline ext { Investment in Sub } & \$ 717,500 & \\hline ext { Inventory } & \$ 90,000 & \$ 45,000 \\hline ext { Equipment (net) } & \$ 750,000 & \$ 170,000 \\hline ext { Land } & & \$ 115,000 \\hline ext { Total Assets } & \$ 2,455,000 & \$ 1,030,000 \\hline ext { Current Liabilities } & \$ 464,000 & \$ 325,000 \\hline ext { Bonds Payable } & \$ 160,000 & \$ 80,000 \\hline ext { Common Shares } & \$ 800,000 & \$ 410,000 \\hline ext { Retained Earnings } & \$ 1,031,000 & \$ 215,000 \\hline ext { Total Liabilities and Equity } & \$ 2,455,000 & \$ 1,030,000 \\hline\end{array} Cash Accounts Receivable Investment in Sub Inventory Equipment (net) Land Total Assets Current Liabilities Bonds Payable Common Shares Retained Earnings Total Liabilities and Equity Par Inc. $647 , 500 $250 , 000 $717 , 500 $90 , 000 $750 , 000 $2 , 455 , 000 $464 , 000 $160 , 000 $800 , 000 $1 , 031 , 000 $2 , 455 , 000 Sub Inc. $665 , 000 $35 , 000 $45 , 000 $170 , 000 $115 , 000 $1 , 030 , 000 $325 , 000 $80 , 000 $410 , 000 $215 , 000 $1 , 030 , 000 Both companies use a FIFO system, and Sub's entire inventory on the date of acquisition was sold during the following year. During 2020, Sub Inc. borrowed $10,000 in cash from Par Inc. interest free to finance its operations. The amount remains unpaid as of June 30, 2021. The Par uses the Equity Method to account for its investment in Sub Inc. Corp.Prepare Par's consolidated income statement for the year ended June 30, 2021. Show the allocation of consolidated net income between the controlling and non-controlling interests.

Question

Par Inc. purchased 70% of the outstanding voting shares of Sub Inc. for $700000 on July 1, 2020. On that date, Sub Inc. had common shares and retained earnings worth $410,000 and $170,000, respectively. The Equipment had a remaining useful life of 5 years from the date of acquisition. Sub's bonds mature on July 1, 2025. The inventory was sold in the year following the acquisition. Both companies use straight line amortization, and no salvage value is assumed for assets. Par Inc. and Sub Inc. declared and paid $10,000 and $5,000 in dividends, respectively during the year.Par Inc. uses the Fair Value Enterprise Method to value the non-controlling interest in Sub Inc. on the acquisition date.The balance sheets of both companies, as well as Sub's fair values immediately following the acquisition are shown below:  Par Inc.   Sub Inc.   Sub Inc.   (carrying value)   (carrying value)   (fair value)   Cash  $ 600 , 000 $ 515 , 000 $ 515 , 000  Accounts Receivable  $ 140 , 000 $ 85 , 000 $ 85 , 000  Inventory  $ 60 , 000 $ 45 , 000 $ 60 , 000  Investment in Sub Inc.  $ 700 , 000  Equipment (net)  $ 50 , 000 $ 180 , 000 $ 185 , 000  Land  $ 115 , 000 $ 200 , 000  Total Assets  $ 1 , 550 , 000 $ 940 , 000  Current Liabilities  $ 100 , 000 $ 280 , 000 $ 280 , 000  Bonds Payable  $ 160 , 000 $ 80 , 000 $ 60 , 000  Common Shares  $ 800 , 000 $ 410 , 000  Retained Earnings  $ 490 , 000 $ 170 , 000  Total Liabilities and Equity  $ 1 , 550 , 000 $ 940 , 000 \begin{array}{|l|r|r|r|} \hline &  	ext { Par Inc. }  &  	ext { Sub Inc. }  &  	ext { Sub Inc. } \\hline  &  	ext { (carrying value) }  &  	ext { (carrying value) }  &  	ext { (fair value) } \\hline 	ext { Cash }  &  \$ 600,000  &  \$ 515,000  &  \$ 515,000 \\hline 	ext { Accounts Receivable }  &  \$ 140,000  &  \$ 85,000  &  \$ 85,000 \\hline 	ext { Inventory }  &  \$ 60,000  &  \$ 45,000  &  \$ 60,000 \\hline 	ext { Investment in Sub Inc. }  &  \$ 700,000  &   &  \\hline 	ext { Equipment (net) }  &  \$ 50,000  &  \$ 180,000  &  \$ 185,000 \\hline 	ext { Land }  &   &  \$ 115,000  &  \$ 200,000 \\hline 	ext { Total Assets }  &  \$ 1,550,000  &  \$ 940,000 \\hline 	ext { Current Liabilities }  &  \$ 100,000  &  \$ 280,000 & \$280,000 \\hline 	ext { Bonds Payable }  &  \$ 160,000  &  \$ 80,000 & \$60,000 \\hline	ext { Common Shares } & \$800,000 & \$410,000\\hline	ext { Retained Earnings } & \$490,000 & \$170,000\\hline	ext { Total Liabilities and Equity } & \$1,550,000 & \$940,000\\hline\end{array}  Cash   Accounts Receivable   Inventory   Investment in Sub Inc.   Equipment (net)   Land   Total Assets   Current Liabilities   Bonds Payable   Common Shares   Retained Earnings   Total Liabilities and Equity  ​  Par Inc.   (carrying value)  $600 , 000 $140 , 000 $60 , 000 $700 , 000 $50 , 000 $1 , 550 , 000 $100 , 000 $160 , 000 $800 , 000 $490 , 000 $1 , 550 , 000 ​  Sub Inc.   (carrying value)  $515 , 000 $85 , 000 $45 , 000 $180 , 000 $115 , 000 $940 , 000 $280 , 000 $80 , 000 $410 , 000 $170 , 000 $940 , 000 ​  Sub Inc.   (fair value)  $515 , 000 $85 , 000 $60 , 000 $185 , 000 $200 , 000 $280 , 000 $60 , 000 ​ ​   The following are the financial statements for both companies for the fiscal year ended June 30, 2021:Income Statements  Sales  $ 800 , 000 $ 300 , 000  Investment Revenue  $ 21 , 000  Less: Expenses:   Cost of Goods Sold  $ 240 , 000 $ 180 , 000  Depreciation  $ 10 , 000 $ 20 , 000  Interest Expense  $ 12 , 000 $ 40 , 000  Other Expenses  $ 8 , 000 $ 10 , 000  Net Income  $ 551 , 000 $ 50 , 000 \begin{array}{|l|r|r|}\hline 	ext { Sales }  &  \$ 800,000  &  \$ 300,000 \\hline 	ext { Investment Revenue }  &  \$ 21,000  &  \\hline 	ext { Less: Expenses: }  &   &  \\hline 	ext { Cost of Goods Sold }  &  \$ 240,000  &  \$ 180,000 \\hline 	ext { Depreciation }  &  \$ 10,000  &  \$ 20,000 \\hline 	ext { Interest Expense }  &  \$ 12,000  &  \$ 40,000 \\hline 	ext { Other Expenses }  &  \$ 8,000  &  \$ 10,000 \\hline 	ext { Net Income }  &  \$ 551,000  &  \$ 50,000\\hline\end{array}  Sales   Investment Revenue   Less: Expenses:   Cost of Goods Sold   Depreciation   Interest Expense   Other Expenses   Net Income  ​ $800 , 000 $21 , 000 $240 , 000 $10 , 000 $12 , 000 $8 , 000 $551 , 000 ​ $300 , 000 $180 , 000 $20 , 000 $40 , 000 $10 , 000 $50 , 000 ​ ​   Retained Earnings Statements  Balance, July 1, 2020  $ 490 , 000 $ 170 , 000  Net Income  $ 551 , 000 $ 50 , 000  Dividends  $ ( 10 , 000 ) $ ( 5 , 000 )  Balance, June  30 , 2021 $ 1 , 031 , 000 $ 215 , 000 \begin{array}{|l|r|r|}\hline 	ext { Balance, July 1, 2020 }  &  \$ 490,000  &  \$ 170,000 \\hline 	ext { Net Income }  &  \$ 551,000  &  \$ 50,000 \\hline 	ext { Dividends }  &  \$(10,000)  &  \$(5,000) \\hline 	ext { Balance, June } 30,2021  &  \$ 1,031,000  &  \$ 215,000\\hline\end{array}  Balance, July 1, 2020   Net Income   Dividends   Balance, June  30 , 2021 ​ $490 , 000 $551 , 000 $ ( 10 , 000 ) $1 , 031 , 000 ​ $170 , 000 $50 , 000 $ ( 5 , 000 ) $215 , 000 ​ ​   Balance Sheets  Par Inc.   Sub Inc.   Cash  $ 647 , 500 $ 665 , 000  Accounts Receivable  $ 250 , 000 $ 35 , 000  Investment in Sub  $ 717 , 500  Inventory  $ 90 , 000 $ 45 , 000  Equipment (net)  $ 750 , 000 $ 170 , 000  Land  $ 115 , 000  Total Assets  $ 2 , 455 , 000 $ 1 , 030 , 000  Current Liabilities  $ 464 , 000 $ 325 , 000  Bonds Payable  $ 160 , 000 $ 80 , 000  Common Shares  $ 800 , 000 $ 410 , 000  Retained Earnings  $ 1 , 031 , 000 $ 215 , 000  Total Liabilities and Equity  $ 2 , 455 , 000 $ 1 , 030 , 000 \begin{array}{|l|r|r|}\hline  &  	ext { Par Inc. }  &  	ext { Sub Inc. } \\hline 	ext { Cash }  &  \$ 647,500  &  \$ 665,000 \\hline 	ext { Accounts Receivable }  &  \$ 250,000  &  \$ 35,000 \\hline 	ext { Investment in Sub }  &  \$ 717,500  &  \\hline 	ext { Inventory }  &  \$ 90,000  &  \$ 45,000 \\hline 	ext { Equipment (net) }  &  \$ 750,000  &  \$ 170,000 \\hline 	ext { Land }  &   &  \$ 115,000 \\hline 	ext { Total Assets }  &  \$ 2,455,000  &  \$ 1,030,000 \\hline 	ext { Current Liabilities }  &  \$ 464,000  &  \$ 325,000 \\hline 	ext { Bonds Payable }  &  \$ 160,000  &  \$ 80,000 \\hline 	ext { Common Shares }  &  \$ 800,000  &  \$ 410,000 \\hline 	ext { Retained Earnings }  &  \$ 1,031,000  &  \$ 215,000 \\hline 	ext { Total Liabilities and Equity }  &  \$ 2,455,000  &  \$ 1,030,000 \\hline\end{array}  Cash   Accounts Receivable   Investment in Sub   Inventory   Equipment (net)   Land   Total Assets   Current Liabilities   Bonds Payable   Common Shares   Retained Earnings   Total Liabilities and Equity  ​  Par Inc.  $647 , 500 $250 , 000 $717 , 500 $90 , 000 $750 , 000 $2 , 455 , 000 $464 , 000 $160 , 000 $800 , 000 $1 , 031 , 000 $2 , 455 , 000 ​  Sub Inc.  $665 , 000 $35 , 000 $45 , 000 $170 , 000 $115 , 000 $1 , 030 , 000 $325 , 000 $80 , 000 $410 , 000 $215 , 000 $1 , 030 , 000 ​ ​   Both companies use a FIFO system, and Sub's entire inventory on the date of acquisition was sold during the following year. During 2020, Sub Inc. borrowed $10,000 in cash from Par Inc. interest free to finance its operations. The amount remains unpaid as of June 30, 2021. The Par uses the Equity Method to account for its investment in Sub Inc. Corp.Prepare Par's consolidated income statement for the year ended June 30, 2021. Show the allocation of consolidated net income between the controlling and non-controlling interests.

Virginia Aguilar · Accepted Answer

Final Answer :  Par Inc.Consolidated Income Statementfor the Year ended June 30, 2021  Sales  $ 1 , 100 , 000  Less: Expenses:   Cost of Goods Sold:  $ 435 , 000 ( $ 240 , 000 + $ 180 , 000 ) + $ 15 , 000  Depreciation  $ 31 , 000 ( $ 10 , 000 + $ 20 , 000 ) + $ 1 , 000  Interest Expense  $ 56 , 000 ( $ 12 , 000 + $ 40 , 000 ) + $ 4 , 000  Other Expenses  $ 18 , 000  Consolidated Net Income  $ 560 , 000  Less: Non-Controlling  ( $ 9 , 000 ) ( $ 50 , 000 − $ 15 , 000 − $ 1 , 000 − $ 4 , 000 ) × 30 %  interest   Parent’s Share of CNI  $ 551 , 000 \begin{array}{|l|l|l|}\hline 	ext { Sales }  &  \$ 1,100,000 \\hline 	ext { Less: Expenses: }  &  \\hline 	ext { Cost of Goods Sold: }  &  \$ 435,000  &  (\$ 240,000+\$ 180,000)+\$ 15,000 \\hline 	ext { Depreciation }  &  \$ 31,000  &  (\$ 10,000+\$ 20,000)+\$ 1,000 \\hline 	ext { Interest Expense }  &  \$ 56,000  &  (\$ 12,000+\$ 40,000)+\$ 4,000 \\hline 	ext { Other Expenses }  &  \$ 18,000 \\hline 	ext { Consolidated Net Income }  &  \$ 560,000 \\hline 	ext { Less: Non-Controlling }  &  (\$ 9,000)  &  (\$ 50,000-\$ 15,000-\$ 1,000-\$ 4,000) 	imes 30 \% \	ext { interest }  &   &  \\hline 	ext { Parent ' s Share of CNI }  &  \$ 551,000\\hline\end{array}  Sales   Less: Expenses:   Cost of Goods Sold:   Depreciation   Interest Expense   Other Expenses   Consolidated Net Income   Less: Non-Controlling   interest   Parent’s Share of CNI  ​ $1 , 100 , 000 $435 , 000 $31 , 000 $56 , 000 $18 , 000 $560 , 000 ( $9 , 000 ) $551 , 000 ​ ( $240 , 000 + $180 , 000 ) + $15 , 000 ( $10 , 000 + $20 , 000 ) + $1 , 000 ( $12 , 000 + $40 , 000 ) + $4 , 000 ( $50 , 000 − $15 , 000 − $1 , 000 − $4 , 000 ) × 30% ​ ​

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