Green Ltd Purchased 90 Per Cent of the Issued Capital

Multiple Choice

Green Ltd purchased 90 per cent of the issued capital and in the process gained control over Maroon Ltd on 1 July 2015.The fair value of the net assets of Maroon Ltd at purchase was represented by: $$\begin{array} { | l | r | } \text { Share capital } & \$ 3220000 \\\hline \text { Retained earnings } & 740000 \\\hline & \$ 3960000 \\\hline\end{array}$$ Green Ltd paid cash consideration of $3 700 000 for Maroon Ltd.During the period ended 30 June 2017,Maroon Ltd paid management fees of $100 000 to Green Ltd and Maroon had an operating profit of $405 000.Maroon Ltd declared a dividend of $98 000 during the period.Green purchased inventory from Maroon during the period ended 30 June 2017 for $100 000.The inventory cost Maroon Ltd $85 000 and at the end of the period Green had 35 per cent of that inventory still on hand.Maroon's opening retained earnings for the period ended 30 June 2017 was $810 000.Goodwill has been determined to have been impaired by $13 600.Companies in the group use perpetual inventory systems and accrue dividends when they are declared by subsidiaries.There were no other inter-company transactions.Ignore tax implications. For the period ended 30 June 2017,what consolidation journal entries are required and what is the outside equity interest?

A) $\text { Consolidation journal entries: }$
$\begin{array}{|l|l|r|l|}\hline \mathrm{Dr} & \text { Share capital } & 2898000 & \\\hline \mathrm{Dr} & \text { Retained earnings } & 666000 & \\\hline \mathrm{Dr} & \text { Goodwill } & 136000 & \\\hline \mathrm{Cr} & \text { Investment in Maroon Ltd } && 3700000 \\\hline\\\hline \mathrm{Dr} & \text { Impairment loss } & 13600 & \\\hline \mathrm{Cr} & \text { Accumulated impairment loss } & & 13600 \\\hline & & & \\\hline \mathrm{Dr} & \text { Management fee revenue } & 90000 & \\\hline \mathrm{Cr} & \text { Management fee expense } & & 90000\\\hline\\\hline \mathrm{Dr} & \text { Dividend revenue } & 88200 & \\\hline \mathrm{Cr} & \text { Dividend paid } & & 88200 \\\hline & & & \\\hline \mathrm{Dr} & \text { Sales revenue } & 90000 & \\\hline \mathrm{Cr} & \text { Cost of goods sold } & & 90000 \\\hline & & & \\\hline \mathrm{Dr} & \text { Cost of goods sold } & 4725 & \\\hline \mathrm{Cr} & \text { Inventory } & & 4725 \\\hline\end{array}$

$\text { Non-controlling interest }$
$\begin{array}{|l|r|r|}\hline \text { Operating profit } & 40500&\quad\quad\quad \\\hline \text { Opening retained earnings } & 81000 \\\hline \text { Dividends } & (9800) \\\hline \text { Share capital } & \underline{322000} \\\hline \text { Total } & \underline{433700} \\\hline\end{array}$
B) $\text { Consolidation journal entries: }$
$\begin{array}{|l|l|r|r|}\hline \mathrm{Dr} & \text { Share capital } & 2898000 & \\\hline \mathrm{Dr} & \text { Retained earnings } & 666000 & \\\hline \mathrm{Dr} & \text { Goodwill } & 136000 & \\\hline \mathrm{Cr} & \text { Investment in Maroon Ltd } & & 3700000 \\\hline & & 13600 & \\\hline \mathrm{Dr} & \text { Impairment loss } & & 13600 \\\hline \mathrm{Cr} & \text { Accumulated impairment loss } & & \\\hline & & 100000 & \\\hline \mathrm{Dr} & \text { Management fee revenue } & & 100000\\\hline\\\hline \mathrm{Dr} & \text { Dividend payable } & 88200 & \\\hline \mathrm{Cr} & \text { Dividend declared } & & 88200 \\\hline & & 88200 & \\\hline \mathrm{Dr} & \text { Dividend revenue } & & 88200 \\\hline \mathrm{Cr} & \text { Dividend receivable } & & \\\hline & & 100000 & \\\hline \mathrm{Dr} & \text { Sales revenue } & & 100000 \\\hline \mathrm{Cr} & \text { Cost of goods sold } & & \\\hline & & & \\\hline \mathrm{Dr} & \text { Cost of goods sold } & 5250 \\\hline \mathrm{Cr} & \text { Inventory } & & 5250 \\\hline\end{array}$

$\text { Non-controlling interest: }$
$\begin{array}{|l|r|r|}\hline \text { Operating profit } & 39975 &\quad\quad\quad\\\hline \text { Opening retained earnings } & 81000 \\\hline \text { Dividends } & (9800) \\\hline \text { Share capital } & \underline{322000} \\\hline \text { Total } & 433175 \\\hline\end{array}$

C) $\text { Consolidation journal entries: }$
$\begin{array}{l}\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Share capital } & 2898000 & \\\hline \mathrm { Dr } & \text { Retained earnings } & 666000 & \\\hline \mathrm { Cr } & \text { Investment in Maroon Ltd } & & 3564000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Management fee expense } & 10000 & \\\hline \mathrm { Cr } & \text { Management fee revenue } & & 10000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Dividend payable } & 88200 & \\\hline \mathrm { Cr } & \text { Dividend declared } & & 88200 \\\hline \mathrm { Dr } & \text { Dividend revenue } &88200 & \\\hline \mathrm { Cr } & \text { Dividend receivable } & &88200 \\\hline & & & \\\hline \mathrm { Dr } & \text { Sales revenue } & 90000& \\\hline \mathrm { Cr } & \text { Cost of goods sold } & &90000 \\\hline \end{array}\\\\\text { Non-controlling interest: }\\\begin{array} { | l | r | l | } \hline \text { Operating profit } & 40500 &\quad\quad\quad \\\hline \text { Opening retained earnings } & 74000 & \\\hline \text { Dividends } & ( 9800 ) & \\\hline \text { Share capital } & 322000 & \\\hline \text { Total } & 426700 & \\\hline\end{array}\end{array}$
D) $\begin{array}{|c|l|r|r|}\hline \text { Consolidation journal entries: } & & \\\hline \mathrm{Dr} & \text { Share capital } & 3220000 & \\\hline \mathrm{Dr} & \text { Retained earnings } & & 740000 \\\hline \mathrm{Cr} & \text { Non-controlling interest } & & 260000 \\\hline \mathrm{Cr} & \text { Investment in Maroon Ltd } & & \\\hline & & 100000 & \\\hline \mathrm{Dr} & \text { Management fee revenue } & & 100000 \\\hline \mathrm{Cr} & \text { Management fee expense } & & \\\hline\\\hline \mathrm{Dr} & \text { Dividend payable } & 88200 & \\\hline \mathrm{Cr} & \text { Dividend declared } & & 88200 \\\hline & & & \\\hline \mathrm{Dr} & \text { Dividend revenue } & 88200 & \\\hline \mathrm{Cr} & \text { Dividend receivable } & & 88200 \\\hline\\\hline \mathrm{Dr} & \text { Sales revenue } & 90000 & \\\hline \mathrm{Cr} & \text { Cost of goods sold } & & 90000 \\\hline & & & \\\hline \mathrm{Dr} & \text { Cost of goods sold } & 5250 & \\\hline \mathrm{Cr} & \text { Inventory } & & 5250 \\\hline\\\hline\text { Non-controlling interest: }\\\hline \text { Operating profit } && 50500 \\\hline \text { Opening retained earnings } && 74000 \\\hline \text { Dividends } && (9800) \\\hline \text { Share capital } && \underline{322000} \\\hline \text { Total } && 436700 \\\hline\end{array}$