Problem 1
Pre-Contribution Balance Sheets and Fair Values
June 30, 20X9
(in thousands of $)
Swag Co. Perk Ltd.
|
Pre-
Contribution
|
Fair
Value
|
Pre-
Contribution
|
Fair
Value
|
Assets:
|
|
|
|
|
Cash and cash equivalents
|
1,645
|
1,645
|
840
|
840
|
Accounts receivable
|
1,400
|
1,400
|
1,260
|
1,260
|
Land
|
3,500
|
5,950
|
-
|
-
|
Building (net)
|
9,450
|
7,700
|
5,880
|
7,700
|
Equipment (net)
|
420
|
525
|
2,170
|
2,800
|
Total assets
|
16,415
|
|
10,150
|
|
|
|
|
|
|
Liabilities and
shareholders' equity:
|
|
|
|
|
Accounts payable
|
455
|
455
|
770
|
770
|
Long-term debt
|
1,400
|
1,400
|
700
|
630
|
Total liabilities
|
1,855
|
|
1,470
|
|
Common shares
|
10,500
|
|
4,865
|
|
Retained earnings
|
4,060
|
|
3,815
|
|
Total shareholders' equity
|
14,560
|
|
8,680
|
|
Total liabilities and
shareholders' equity
|
16,415
|
|
10,150
|
|
Swag Co. acquired Perk on June 30, 20X9. Both 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:
Prepare Swag's consolidated balance sheet under each of the following independent situations:
a) Swag purchased the assets and assumed 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. The fair value of the 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 a
market value of $9,450,000.
Problem 2
Balance Sheets
December 31, 20X3
|
GreenTower
Ltd.
|
BlueLoft
Ltd.
|
Assets:
|
|
|
Current assets:
|
|
|
Cash
|
mce_markernbsp; 156,000
|
mce_markernbsp; 143,000
|
Accounts receivable
|
195,000
|
175,500
|
Inventory
|
312,000
|
253,500
|
Total current assets
|
663,000
|
572,000
|
Land
|
923,000
|
-
|
Equipment
|
897,000
|
1,183,000
|
Accumulated amortization
|
(663,000)
|
(416,000)
|
Investment in Blue Loft
|
1,409,200
|
-
|
Goodwill*
|
98,800
|
__-____
|
Total assets
|
3,328,000
|
1,339,000
|
Liabilities and shareholders' equity:
|
|
|
Liabilities:
|
|
|
Accounts payable
|
184,600
|
78,000
|
Bonds payable
|
780,000
|
260,000
|
Total liabilities
|
964,600
|
338,000
|
Shareholders' equity:
|
|
|
Common shares
|
650,000
|
325,000
|
Retained earnings
|
1,713,400
|
676,000
|
Total shareholders' equity
|
2,363,400
|
1,001,000
|
Total liabilities and shareholders' equity
|
$3,328,000
|
$1,339,000
|
*from an acquisition prior to Blue Loft
Income Statements
Year Ended December 31, 20X3
|
GreenTower
Ltd.
|
BlueLoft
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
|
Statements of Retained Earnings
Year Ended December 31, 20X3
|
Green Tower
Ltd.
|
BlueLoft
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
|
mce_markernbsp; 104,000
|
mce_markernbsp; 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. acquired all the outstanding common shares of Blue Loft Ltd. for $1,409,200 cash.
- At December 31, 20X2, Green Tower's inventory included goods that it had purchased from Blue Loft for $58,500. The 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:
Prepare 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 usually declares half of its profits as dividends.
Cox uses the entity theory method to consolidate its subsidiary.
Required:
a) find out the total amount of dividends declared by March for 20X7.
b) find out March's profit for 20X8.
c) find out the non-controlling interest amounts for Cox's 20X9
i. consolidated income statement, and
ii. consolidated balance sheet.
d) find out the amount of goodwill that should appear on Cox's 20X9 consolidated balance sheet.