Pop Company acquired 70% of Son Limited on January 1, 20X4, for $ 345,000. On the acquisition date, common shares and retained earnings of Son Limited were $ 100,000 and $ 200,000 respectively. The fair market values of Son’s identifiable net assets were equivalent to their carrying value except for capital assets, which were undervalued by $ 50,000, and long- term debt, which was overvalued by $ 100,000. The undervalued capital assets have a remaining life of 10 years. The long- term debt matures on December 31, 20X8. Any goodwill is tested for impairment on an annual basis. Both companies use the straight- line method of amortization.Intercompany transactions include the downstream sale of a capital asset in 20X4, which included an unrealized profit of $ 30,000 to be amortized over five years. During 20X5, there was an intercompany upstream sale of land for $ 120,000. The original cost of the land was $ 95,000.For the year ended December 31, 20X5, Pop Company had net income of $ 244,000 and declared dividends of $ 10,000. Son Limited had 20X5 net income of $ 85,000 and paid dividends of $ 10,000. All dividends have been declared and paid on December 31. Pop Company uses the cost method to account for its investment in Son Limited. Shown below are the statements of financial position for the parent company and its subsidiary on December 31, 20X5.Statements of Financial PositionDecember 31, 20X5Required1. Determine consolidated net income for the year ended December 31, 20X5. Show all your calculations.2. Calculate the balances of the following accounts as they would appear in the consolidated statement of financial position on December 31, 20X5:a) Capital assets, netb) Non-controlling interestc) Retained earnings3. Prepare the required December 31, 20X5, journal entry to eliminate the Investment in Son Limitedaccount.
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Pop Company acquired 70 of Son Limited on January 1