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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. 

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