On October 1, 2010, Madison Ltd. acquired all the shares of Dobson Ltd. for $849,600. On that date, Dobson's statement of financial position showed share capital of $540,000 and retained earnings of $273,600. In addition, at the acquisition date, all of Dobson's identifiable assets and liabilities had carrying values that equaled their fair values.
Madison and Dobson's financial statements for September 30, 2014 are presented below:
Statement of Financial Position
As of September 30, 2014
Madison Ltd. Dobson Ltd.
Assets:
Current assets:
Cash $ 144,000 $ 131,400
Short-term investments 27,000 122,400
Accounts receivable 18,000 540,000
Inventory 302,400 64,800491,400 858,600
Non-current assets:
Land 126,000 216,000
Equipment, net 75,600 27,000
Investment in Dobson 849,600 ___-___
1,051,200 243,000
1,542,600 1,101,600
Liabilities and shareholders' equity:
Current liabilities:
Accounts payable 9,000 23,400
Non-current liabilities:
Deferred income taxes 93,600 54,000
102,600 77,400
Shareholders' equity:
Share capital 900,000 540,000
Retained earnings 540,000 484,200
1,440,000 1,024,200
$1,542,600 $1,101,600
Statement of Income
For the year ended September 30, 2014
Madison Ltd. Dobson Ltd.
Sales revenue $ 2,152,500 $ 1,670,400
Cost of sales 1,598,400 1,207,225
Gross profit 554,100 463,175
Expenses:
Salaries and benefits 103,500 57,600
Amortization 9,360 8,640
Other 7,200 __-___ 120,060
66,240
Other revenues and expenses:
Investment income 300 1,225
Loss on disposal of asset
(1,800) __-___ 432,540
398,160Income tax expense 173,016
213,264
Net income $ 259,524 $ 184,896
Statement of Changes in Equity
For the year ended September 30, 2014
Dobson Ltd. Madison Ltd.
Share capital, October 1, 2013 $ 900,000 $ 540,000
Changes during the year ___-___ ___-___
Share capital, September 30, 2014 900,000 540,000
Retained earnings, October 1, 2013 424,476 299,304
Net income 259,524 184,896
Dividends declared (144,000) ______
Retained earnings, September 30, 2014 540,000 484,200
$ 1,440,000 $ 1,024,200
Additional information:
Both companies use a perpetual inventory system, have a September 30 year-end, and a 30% tax rate. Madison uses the entity theory method for consolidation.
On June 30, 2014, Madison sold some equipment to Dobson for $10,800. At that date, the net book value of the equipment to Madison was $12,600. The equipment is expected to have a remaining useful life of 10 years.
On April 1, 2014, Madison purchased $90,000 of merchandise from Dobson. Dobson had acquired the goods for $54,000. On July 15, Madison sold half of the goods to a customer for $50,400. The remaining goods were still in Madison's inventory at its 2014 fiscal year-end.
At October 1, 2013, Madison had some goods in inventory that it had purchased from Dobson at May 25, 2013. The profit on these goods was $10,800. These goods were sold by December 31, 2013.
In 2011, Madison sold a tract of land to Dobson for an accounting gain of $36,000. Dobson plans to build a warehouse and office complex on the land in 2015.
Required:
Prepare Madison's consolidated financial statements for the year ended September 30, 2014. (Round numbers to the nearest dollar, and show all your calculations.)