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 64,800 491,400 858,600 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) __-___ 432,540 398,160 Income tax expense 173,016 213,264 Net income $ 259,524 $ 184,896 Statement of Changes in Equity For the year ended September 30, 2014 Madison Ltd. Dobson 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:
1. 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.
2. 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.
3. 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.
4. 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.
5. 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.)