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Situation:

$On$ January $1,20X2,$ Porpoise Corp. acquired $65\%of$ the common shares $of$ Salamander $Co.$ for

$$1,300,000.At$ that date, Salamander's assets and liabilities had the following book values and

fair values:

Salamander $Co.$

Statement $of$ financial position

$AsAt$ January $1,20X2$

$Asof$ January $1,20X2,$ the equipment had a remaining useful life $of$ eight years. Inventory $on$

hand $on$ January $1,20X2,$ was all sold $by$ December $31,20X2.$ The bonds payable mature $on$

December $31,20X6.$

Porpoise uses the cost method $to$ account for its investment $in$ Salamander. The companies' statements $of$ financial position $at$ December $31,20X4,$ and statements $of$ comprehensive income for the year ended December $31,20X4,$ are $as$ follows:

Statements $of$ financial position

$Asat$ December $31,20X4$

$\begin{array}{cc}?& \text{P}\text{o}\text{r}\text{p}\text{o}\text{i}\text{s}\text{e}\\ \text{S}\text{a}\text{l}\text{a}\text{m}\text{a}\text{n}\text{d}\text{e}\text{r}& ?\\ ?& ?\\ ?& \text{C}\text{a}\text{s}\text{h}\\ \text{\$}350& 000\\ \text{\$}140& 000\\ ?& ?\\ \text{A}\text{c}\text{c}\text{o}\text{u}\text{n}\text{t}\text{s}\text{r}\text{e}\text{c}\text{e}\text{i}\text{v}\text{a}\text{b}\text{l}\text{e}& 550\\ 000& 360\\ 000& ?\\ ?& \text{I}\text{n}\text{v}\text{e}\text{n}\text{t}\text{o}\text{r}\text{y}\\ 1& 000\\ 000& 400\\ 000& ?\\ \text{E}\text{q}\text{u}\text{i}\text{p}\text{m}\text{e}\text{n}\text{t}-\text{n}\text{e}\text{t}& 1\\ 650& 000\\ 1& 500\\ 000& \text{I}\text{n}\text{v}\text{e}\text{s}\text{t}\text{m}\text{e}\text{n}\text{t}in\text{S}\text{a}\text{l}\text{a}\text{m}\text{a}\text{n}\text{d}\text{e}\text{r}\\ 1& 300\\ 000& -\\ ?& ?\\ ?& \text{\$}4\\ 850& 000\\ \text{\$}2& 400\\ 000& \text{A}\text{c}\text{c}\text{o}\text{u}\text{n}\text{t}\text{s}\text{p}\text{a}\text{y}\text{a}\text{b}\text{l}\text{e}\\ \text{\$}550& 000\\ \text{\$}200& 000\\ ?& ?\\ \text{B}\text{o}\text{n}\text{d}\text{s}\text{p}\text{a}\text{y}\text{a}\text{b}\text{l}\text{e}& 700\\ 000& 400\\ 000& ?\\ ?& \text{C}\text{o}\text{m}\text{m}\text{o}\text{n}\text{s}\text{h}\text{a}\text{r}\text{e}\text{s}\\ 1& 250\\ 000& 500\\ 000& ?\\ \text{R}\text{e}\text{t}\text{a}\text{i}\text{n}\text{e}\text{d}\text{e}\text{a}\text{r}\text{n}\text{i}\text{n}\text{g}\text{s}& 2\\ 350& 000\\ 1& 300\\ 000& ?\\ \text{\$}4& 850\\ 000& \text{\$}2\\ 400& 000\end{array}$

Statement $of$ Comprehensive Income

For the year ended December $31,20X4$

$\begin{array}{cc}?& \text{P}\text{o}\text{r}\text{p}\text{o}\text{i}\text{s}\text{e}\\ \text{S}\text{a}\text{l}\text{a}\text{m}\text{a}\text{n}\text{d}\text{e}\text{r}& ?\\ ?& ?\\ ?& \text{S}\text{a}\text{l}\text{e}\text{s}\\ \text{\$}5& 000\\ 000& \text{\$}3\\ 000& 000\\ \text{C}\text{o}\text{s}\text{t}of\text{g}\text{o}\text{o}\text{d}\text{s}\text{s}\text{o}\text{l}\text{d}& 3\\ 500& 000\\ 2& 400\\ 000& \text{G}\text{r}\text{o}\text{s}\text{s}\text{p}\text{r}\text{o}\text{f}\text{i}\text{t}\\ 1& 500\\ 000& 600\\ 000& ?\\ \text{S}\text{e}\text{l}\text{l}\text{i}\text{n}\text{g}\text{a}\text{n}\text{d}\text{a}\text{d}\text{m}\text{i}\text{n}\text{i}\text{s}\text{t}\text{r}\text{a}\text{t}\text{i}\text{v}\text{e}& 600\\ 000& 350\\ 000& ?\\ ?& \text{e}\text{x}\text{p}\text{e}\text{n}\text{s}\text{e}\text{s}\\ ?& ?\\ ?& ?\\ ?& ?\\ \text{D}\text{e}\text{p}\text{r}\text{e}\text{c}\text{i}\text{a}\text{t}\text{i}\text{o}\text{n}\text{e}\text{x}\text{p}\text{e}\text{n}\text{s}\text{e}& 120\\ 000& 75\\ 000& ?\\ ?& \text{I}\text{n}\text{t}\text{e}\text{r}\text{e}\text{s}\text{t}\text{e}\text{x}\text{p}\text{e}\text{n}\text{s}\text{e}\\ 60& 000\\ 25& 000\\ ?& ?\\ \text{I}\text{n}\text{c}\text{o}\text{m}\text{e}\text{b}\text{e}\text{f}\text{o}\text{r}\text{e}\text{i}\text{n}\text{c}\text{o}\text{m}\text{e}\text{t}\text{a}\text{x}\text{e}\text{s}& 720\\ 000& 150\\ 000& ?\\ ?& \text{I}\text{n}\text{c}\text{o}\text{m}\text{e}\text{t}\text{a}\text{x}\text{e}\text{s}\\ 248& 000\\ 60& 000\\ ?& ?\\ \text{N}\text{e}\text{t}\text{i}\text{n}\text{c}\text{o}\text{m}\text{e}\text{a}\text{n}\text{d}& \text{\$}472\\ 000& \text{\$}90\\ 000& ?\\ ?& \text{c}\text{o}\text{m}\text{p}\text{r}\text{e}\text{h}\text{e}\text{n}\text{s}\text{i}\text{v}\text{e}\text{i}\text{n}\text{c}\text{o}\text{m}\text{e}\\ ?& ?\\ ?& ?\\ ?& ?\end{array}$ Additional information:

During $20X3$ and $20X4,$ Salamander sold inventory $to$ Porpoise with $a20\%$ gross profit

$as$ follows:

During $20X4,$ Porpoise sold inventory $to$ Salamander with $a30\%$ gross profit $as$ follows:

Intercompany sales $-$ downstream sale $of$ $$160,000$

Goods remaining $in$ Salamander's inventory $at$ December $31-$ $$160,000$

Management has determined that Salamander $is$ a cash$-$generating unit $(CGU).$ Porpoise

tests its investment $in$ Salamander each year for impairment and allocates the loss, $if$ any,

first $to$ goodwill. Goodwill was impaired $by$ $$20,000$ and $$30,000$ for fiscal years $20X3$

and $20X4,$ respectively.

$On$ July $1,20X3,$ Salamander sold Porpoise equipment with a net book value $of$ $$70,000$

for a cash consideration $of$ $$40,000.$ The equipment originally cost Salamander $$90,000.$

$It$ had a remaining useful life $of$ six years $at$ the date $of$ the intercompany sale. Assume

that the loss $is$ not $an$ impairment loss.

Neither company paid dividends $in20X4.$ The income tax rate has remained $at40\%$ for

both companies since $20X2.$ Ignore future income taxes $on$ the purchase price

discrepancy.

Porpoise uses the FVE method $to$ value the non$-$controlling interest $at$ the acquisition

date. Requinea: Hit

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