On December 31 2010 Peat Limited purchased 70 of the

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On December 31, 2010, Peat Limited purchased 70% of the outstanding common shares of
Soap Limited for $7 million. On that date, Soap’s shareholders’ equity consisted of common
shares of $5 million and retained earnings of $1.6 million.The ?nancial statements for Peat and
Soap for the year ended December 31, 2013, are as follows:Additional information: 1. In
negotiating the purchase price, it was agreed that the fair value of all of Soap’s assets and
liabilities was equal to their carrying values except for the following:2. Both companies use
?rstin, ?rstout (FIFO) to account for their inventory and the straight-line method for depreciating
their equipment. Soap’s equipment at the date of acquisition had a remaining useful life of ?ve
years. 3. Each year, goodwill is evaluated to determine if there has been impairment. Goodwill
impairment was $100,000 in 2011 and zero for 2012 and 2013. 4. On January 2, 2011, Peat
sold equipment to Soap for $552,000. Peat had paid $600,000 for this equipment on January 2,
2009, and had been depreciating the equipment on a straight-line basis over 10 years. There
was no change in the estimated useful life of this equipment at the time of the purchase by
Soap. 5. During 2013, Peat purchased merchandise from Soap for $600,000. Of this
merchandise, 60% was resold by Peat and the other 40% remains in its December 31, 2013,
inventory. On December 31, 2012, the inventories of Peat contained $400,000 of merchandise
purchased from Soap. Soap earns a gross margin of 25% on its sales to Peat. 6. Ignore income
taxes. Required (a) Calculate the following amounts for the consolidated income statement for
the year ended December 31, 2013: 1. Sales 2. Cost of sales 3. Consolidated net income
attributable to Peat’s shareholdersView Solution:
On December 31 2010 Peat Limited purchased 70 of the

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