Intercompany Amounts:

Dividends: 500,000 x 75% 375,000

Sales: Vine (YR 5) 2 M + Devine (YR 5) 1.2M 3,200,000

Advances from Vine to Devine: 200,000

BT Tax AT

Land: Upstream Gain Sept 1, YR 5 400,000 160,000 240,000

Unrealized Profits: BT Tax AT

Opening Upstream 100 K @ 40% 40,000 16,000 24,000

Downstream 300 K @ 33 1/3% 100,000 40,000 60,000

Ending Upstream 500 K @ 40% 200,000 80,000 120,000

Downstream 600 K @ 33 1/3% 200,000 80,000 120,000

(b) Consolidated Income Statement for the year ending December 31, Year 5

Sales (11.6 M + 3 M – 3.2 M) 11,400,000

Dividend, Investment Income, and Gains

(400 K + 1,000 K – 375K – 400K) 625,000

12,025,000

Cost of Goods Sold

(8M + 1.5 M – 3.2 M - 40K – 100K + 200K + 200K) 6,560,000

Other Expenses (500K + 300K – 20K (Equip) + 80 K (Patent) 860,000

Taxes (500K + 200K – 160K + 16K + 40K –80K – 80K) 436,000

Total expenses 7,856,000

Profit 4,169,000

Attributable to:

Shareholders of Vine 3,768,000

Non-controlling interests (2M – 240K –120K + 24K – 60K) x .25 401,000

4,169,000

Reconciliation:

Vine Profit: 3,000,000

Dividends from Devine Included (375,000)

Equity in Earnings of Devine 1,143,000

Consolidated Profit Attributable to Vine’s Shareholders 3,768,000

(c) Consolidated Retained Earnings: Proof

Parent retained earnings at December 31, Year 5 12,000,000

Sub retained earnings at December 31, Year 5 7,000,000

Retained earnings at acquisition 2,100,000

Increase since acquisition 4,900,000

Less: unrealized profits, ending inventory (120,000)

Land (240,000)

Less: cumulative amortization of acquisition differential (100,000)

Realized retained earnings since acquisition 4,440,000 (a)

Parent % 75% 3,330,000

Less: unrealized profits, ending inventory (120,000)

Consolidated retained earnings 15,210,000

(d)

Consolidated Statement of Financial Position December 31, Year 5

Assets

Land (6M + 2.5 M + 200K – 400K) 8,300,000

Plant and Equipment (18.8M + 11.8M – 200K – 500K) 29,900,000

Accumulated depreciation (5.8M + 5.0M – 100K – 500K) (10,200,000)

Goodwill 600,000

Deferred Income Tax (160K + 80K + 80K) 320,000

Inventories (4.6 M + 2.4 M – 200K – 200K 6,600,000

Cash and Current Receivables (900K + 300K) 1,200,000

36,720,000

Equities and Liabilities

Ordinary shares 10,000,000

Retained Earnings (See part c) 15,210,000

Non-controlling interests (See Below) 2,710,000

Long Term Liabilities (6.6 M + 1.1 M) 7,700,000

Deferred Income Taxes (200K+100K) 300,000

Current Liabilities (700K + 300K – 200K advances) 800,000

36,720,000

Non-controlling Interests: (Method 1)

Devine – Carrying amount December 31, Year 5 10,500,000

Unrealized Profits – Upstream:

Land (240,000)