Plain Ltd. acquired 100% of the voting shares of Stylish Ltd. on January 1, 20X3, for $1,500,000. The financial statement of Stylish Ltd. on the date of acquisition was as follows:
The inventory will be sold and the accounts receivable will be collected within 20X3, and the depreciable capital assets will be depreciated over 10 years, straight-line, with no .
During 20X3, Stylish Ltd. sold inventory to Plain Ltd. for $180,000, with a 20% gross profit on the sale price. At the end of 20X3, $30,000 (at sale price) of these goods were still in the inventory of Plain Ltd. Plain Ltd. sold goods at $200,000 to Stylish Ltd. during 20X3, with a 30% gross profit on the sale price, and $50,000 (at sale price) of these goods were still in the inventory of Stylish Ltd. at the end of 20X3. All of these goods remaining in inventory were sold during 20X4.
During 20X4, Plain Ltd. sold $150,000 of goods to Stylish Ltd., with a 25% gross profit on sale price, and $50,000 (at sale price) of these goods were in the inventory of Stylish at the end of 20X4. In addition, Stylish Ltd. sold goods to Plain Ltd. for $250,000, with a 20% gross profit on sale price, and $100,000 (at sale price) of these goods were still in the inventory of Plain Ltd. at the end of 20X4.
While Plain paid $20,000 as dividends in 20X3, Stylish paid $15,000. Similarly, while Plain paid dividends of $25,000 in 20X4, Stylish paid $20,000.
The retained earnings balance of Plain on January 1, 20X3, was $1,650,000. The following are the of the two companies at December 31, 20X4:
Required
Calculate the following under the entity method, considering all dates carefully:
a. Equity in the earnings of Stylish using the equity method for 20X3
b. The adjusted earnings of Plain for 20X3
c. Consolidated net income for 20X4
d. Consolidated retained earnings balance at the end of 20X4
e. Investment in Stylish account balance at the end of 20X3 under the equity method
f. Consolidated gross depreciable assets, accumulated depreciation, and net depreciable assets at December 31, 20X4
g. Consolidated balance of inventory at December 31, 20X4
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