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Problem 1

Pre-Contribution Balance Sheets and Fair Values
June 30, 20X9
(in thousands of $)

655_Balance sheet_1.jpg

Swag Co. gets Perk on June 30, 20X9.  Both the companies have June 30 year-ends.  Before the combination, Swag and Perk had, respectively, 840,000 and 525,000 common shares, issued and outstanding.
Required:
Make Swag’s consolidated balance sheet under each of the following situations independently:
a) Swag purchased assets and supposed the liabilities of Perk by paying $1,400,000 in cash and issuing a $12,600,000 note.
b) Swag issued 280,000 common shares in exchange for all of Perk’s outstanding shares.  Fair value of Swag shares was $14,000,000.
c) In exchange for all of Perk’s outstanding shares, Swag paid $700,000 cash and issued 189,000 common shares with the market value of $9,450,000.

Problem 2
Balance Sheets
December 31, 20X3

1387_Balance sheet_2.jpg

Income Statements
Year Ended December 31, 20X3

                            Green Tower Ltd.      Blue Loft Ltd.

Sales revenue           $1,560,000          $1,283,100
Cost of goods sold     1,040,000           845,000
                               ______               ______   

                               520,000              438,100
Gain on sale of land   ______               273,000

                               ______             ______   

                              520,000           711,100
Operating expense    305,500    464,100
   Net income    214,500    247,000


Income Statements
Year Ended December 31, 20X3
Statements of Retained Earnings
Year Ended December 31, 20X3
                                                          Green Tower Ltd.    Blue Loft Ltd.
Retained earnings, December 31, 20X2    $1,498,900            $ 429,000
Net income                                               214,500             247,000
Retained earnings, December 31, 20X3       $1,713,400         $ 676,000

Blue Loft Ltd.
Carrying and Fair Values
January 1, 20X2

                                     Carrying Value         Fair Value
Cash                               $   104,000           $   104,000
Accounts receivable             128,700              128,700
Inventory                           231,400              253,500
Land                                  650,000               811,000
Equipment                          390,000               151,000
Accumulated amortization    (260,000)    
Accounts payable                91,000                  91,000
Bonds payable                    260,000                260,000
Common shares                   325,000                   -
Retained earnings                 568,100                   -

• On January 1, 20X2, Green Tower Ltd. obtain all the outstanding common shares of Blue Loft Ltd. for $1,409,200 cash.

• At December 31, 20X2, Green Tower’s inventory incorporated goods which it had purchased from Blue Loft for $58,500.  Intercompany profit on these goods was $15,600.  All these goods were sold to third parties in 20X3.

• During 20X3, Green Tower purchased goods from Blue Loft for $195,000.  Blue Loft earned a gross profit of $65,000 on this sale.  At December 31, 20X3, Green Tower still had 40% of these goods in its inventory.

• During 20X3, Green Tower sold goods to Blue Loft for $507,000.  Green Tower earned a gross profit of $117,000 on this sale.  At December 31, 20X3, Blue Loft still had 20% of these goods in its inventory.

• In December, 20X3, Blue Loft sold a tract of land to Green Tower for $923,000. Blue Loft had purchased the land 8 years ago for $650,000.

• At the time of Green Tower’s acquisition, Blue Loft’s equipment had a remaining estimated useful life of 3 years.  Blue Loft uses the straight-line method of amortization, with no residual value.

Required:

Make the consolidated financial statements for 20X3 using the direct method.  

Problem 3

Cox Ltd. acquired 70% of the common shares of March Co. at the beginning of 20X7.  At the acquisition date, March’s shareholders’ equity consisted of the following:
             Common shares        $720,000
             Retained earnings      360,000

The only acquisition differential pertained to goodwill.
Cox’s “Investment in March” general ledger account is as follows:
1/2/X7    Cost                     $ 781,200           12/31/X7  Dividends  $33,600
12/31/X7 Investment Income   62,160            12/31/X8  Dividends    42,000
12/31/X8 Investment Income   76,440            12/31/X9  Dividends    50,400
12/31/X9 Investment income   94,080   
        Balance                         $ 887,880

March generally declares half of its profits as dividends.

Cox uses the entity theory method to consolidate its subsidiary.

Required:

a) Compute the total amount of dividends declared by March for 20X7.
b) Compute March’s profit for 20X8. 
c) Compute the non-controlling interest amounts for Cox’s 20X9
i. consolidated income statement, and 
ii. consolidated balance sheet.
d) Compute the amount of goodwill that should appear on Cox’s 20X9 consolidated balance sheet.

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