Problem 1

Pre-Contribution Balance Sheets and Fair Values

June 30, 20X9

(in thousands of $)

                                                    Swag Co.               Perk Ltd.

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 given 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

        *from an acquisition prior to Blue Loft

Income Statements

Year Ended December 31, 20X3

Statements of Retained Earnings

Year Ended December 31, 20X3

Blue Loft Ltd.

Carrying and Fair Values

January 1, 20X2

• 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:

March usually declares half of its profits as dividends.

Cox uses the entity theory method to consolidate its subsidiary.

Required:

a) Determine the total amount of dividends declared by March for 20X7.

b) Determine March's profit for 20X8.

c) Determine the non-controlling interest amounts for Cox's 20X9

                     i. consolidated income statement, and  

                    ii. consolidated balance sheet. 
d) Determine the amount of goodwill that should appear on Cox's 20X9 consolidated balance sheet.