Problem -

On 1 July 2015, WC Ltd acquired all the shares in SC Ltd for $400,000. The equity and liability sections of SC Ltd's balance sheet showed the following:

Share capital (300,000 shares)             $300,000

General reserve                                  $60,000

Retained earnings                                $10,000

Dividend payable                                 $5,000

At acquisition date, all the identifiable assets and liabilities of SC Ltd were recorded at amounts equal to fair value except for:

                                          Carrying amount          Fair value

Inventory                            $120,000                      $130,000

Machinery (cost $200,000)    $150,000                      $165,000

In June 2017, a $4,000 dividend was declared by SC Ltd from post-acquisition profits to be paid in August 2017.

The inventory was all sold by 30 June 2016. The machinery had a further five year life and is depreciated on a straight line basis. This machinery was sold on 1 January 2017.

At the acquisition date, SC Ltd had a contingent liability of $20,000 that WC Ltd considered to have a fair value of $12,000. This liability was settled in full at its fair value in June 2017.

Goodwill was not impaired in any period. In the year ending 30 June 2016, SC Ltd transferred $2,000 from pre-acquisition retained earnings to general reserve.

In the year ending 30 June 2017, SC Ltd transferred $5,000 to retained earnings from the general reserve pre-acquisition.

On 30 June 2017, the trial balances of WC Ltd and SC Ltd were as follows:

                                                         WC Ltd                     SC Ltd

Shares in SC Ltd                                  $390 000                    -

Inventory                                            174 000                      $160 000

Other current assets                             54 000                        25 000

Machinery                                            572 500                      412 000

Land                                                    166 200                      65 000

Income tax expenses                            25 000                        30 000

Goodwill                                               -                                  5 000

Interim dividend paid                            10 000                        5 000

Dividend declared                                 10 000                        4 000

                                                           1 401 700                   706 000

Share capital                                        $800 000                    $330 000

General reserve                                    150 000                      57 000

Retained earnings (30/06/2017)              15 000                        15 000

Profit before tax                                    80 000                        90 000

Debentures                                           100 000                      40 000

Dividend payable                                   10 000                        4 000

Other current liabilities                           34 700                        60 000

Accumulated depreciation - Machinery     212 000                      110 000

                                                           1 401 700                  706 000

Additional information:

a) On 1 January 2017, SC Ltd sold inventory costing $15,000 to WC Ltd for $25,000. Half of this inventory was sold by WC Ltd to external parties and the other half of the inventory was still on hand at 30 June 2017.

b) On 31 March 2017, WC Ltd sold machinery to SC Ltd for $6,000 which was $1,000 below its carrying amount at that date. SC Ltd charged depreciation at the rate of 20% per annum on this machinery.

c) The tax rate is 30%.

REQUIREMENTS: Prepare the consolidation worksheet journal entries for the year ended 30 June 2017. Include narrations and show any relevant workings also in the narrations.