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Problem 1

At the starting of 20X2, Dahl Ltd. obtained 8% of the outstanding common shares of Tippy Ltd. for $400,000.  This amounted to 80,000 shares.

At the starting of 20X4, Dahl obtained the additional 270,000 shares of Tippy for $1,512,000.  At this acquisition date, Tippy’s shareholders’ equity consisted of the following:

     4% non-cumulative preferred shares                       $1,000,000
     Common shares, 1,000,000 outstanding shares       2,400,000
      Retained earnings                                                 2,160,000
At this acquisition date, fair values of the net identifiable assets equalled their carrying values except for the following:
                                  Excess of fair value
                                  over carrying value
             Inventory            $  96,000
              Land                  800,000

At the starting of 20X5, Dahl obtained the additional 450,000 shares of Tippy for 2,880,000.  Shares were trading for $6 per share.  At this acquisition date, Tippy’s shareholders’ equity consisted of the following:

    4% non-cumulative preferred shares                      $1,000,000
     Common shares, 1,000,000 outstanding shares       2,400,000
      Retained earnings                                                 2,560,000

At this acquisition date, fair values of the net identifiable assets equalled their carrying values except for the following:
                                                    Excess of fair value over/(under)
                                                          carrying value
         Accounts receivable                      $W (48,000)
         Building and equipment (net)           720,000
         Long-term debt                              160,000

Building and equipment have an estimated remaining life of 10 years and the long-term debt matures in 10 years.
The condensed separate-entity financial statements for December 31, 20X6 are as follows:

Balance Sheets
As at December 31, 20X6
                                                                     Dahl Ltd.      Tippy Ltd.
Cash                                                            $  400,000        $  560,000
Accounts receivable                                         1,920,000         440,000
Inventories                                                       400,000           320,000
Land                                                                4,400,000         800,000
Buildings and equipment (net)                            8,488,000        7,200,000
Investment in Tippy (at cost)                              4,792,000      ____-____
    Total assets                                               $ 20,400,000      $ 9,320,000
Accounts payable                                            $ 2,400,000      $   400,000
Long-term debt                                              3,200,000         1,600,000
    Total liabilities                                             5,600,000         2,000,000
Shareholders’ equity:        
4% non-cumulative preferred shares                         -               1,000,000
Common shares                                                7,200,000        2,400,000
Retained earnings                                              7,600,000        3,920,000
    Total shareholders’ equity                               14,800,000    7,320,000
Total liabilities and shareholders’ equity              $ 20,400,000    $ 9,320,000

          Income Statements
       Year Ended December 31, 20X6
                                         Dahl Ltd.               Tippy Ltd.
Sales                                $ 12,000,000       $ 7,200,000
Dividend income                   96,000                      -
Gain on sale of equipment    _______               168,000
   Total revenue                  12,096,000            7,368,000
Cost of goods sold              7,600,000             4,960,000
Operating expenses              2,374,400            944,000
Income tax expense             825,600                584,000
   Total expenses               10,800,000             6,488,000
Net income                      $  1,296,000           $    880,000

Additional information:

• Dahl and Tippy stated and paid dividends during 20X6 of $400,000 and $160,000, respectively.

• At the end of 20X5, the inventories of Dahl and Tippy included goods with intercompany profits of $68,000 and $152,000 respectively.

• During 20X6, Dahl sold goods to Tippy for $3,120,000 at the gross margin of 45%. At the end of 20X6, $200,000 of these goods was still in Tippy’s inventory.

• During 20X6, Tippy sold goods to Dahl for $2,080,000 at a gross margin of 35%.  At the end of the year, $320,000 of these goods were still in Dahl’s inventory.

• On January 1, 20X6, Tippy sold some equipment to Dahl for $360,000.  At that time, the equipment had a book value of $192,000 and an estimated remaining life of 8 years.  Dahl has paid Tippy $252,000 and will pay the balance on January 31, 20X7.

• Both Dahl and Tippy use the straight-line method of amortization for their buildings and equipment.

• In 20X5, a goodwill impairment of $73,600 was recognized and a further impairment of $46,400 occurred in 20X6.  Impairment losses are allocated 80% to Dahl and 20% to the non-controlling interest.

• Both companies are taxed at an average rate of 40%.


Compute Dahl’s 20X6 consolidated net income and identify the amount attributable to Dahl’s shareholders and to the non-controlling interest.  Be sure to show all your calculations.  You are not needed to make a consolidated income statement.

Problem 2

                  Income Statements
            Year Ended December 31, 20X8
                                      Insure Co.      Go-med Co.
Sales                             $3,900,000      $1,560,000
Other income                    260,000           91,000
Gain on sale of land           ___-___           130,000
                                     4,160,000         1,781,000
Cost of sales                 1,820,000            728,000
Operating expenses          780,000             559,000
Income tax                      520,000             195,000
                                     3,120,000          1,482,000
    Net income                 $1,040,000         $   299,000

Insure acquired 40% of the common shares of Go-med in 20X2 for $1,072,500.

For 20X8, Insure amortized its acquisition differential as follows:
               Buildings                       $ 11,700
        Long-term liabilities               (16,250)
        Goodwill impairment loss         16,900
                                                  $ 12,350

During 20X8, Go-med paid royalties of $162,500 to Insure, which Insure included in its other income.

During 20X8, Go-med sold land to a third party.  It had acquired the land 3 years ago from Insure.  At that time, Insure had recorded a profit on the sale of $29,250.

During 20X8, Go-med declared and paid dividends of $104,000.

Both Insure and Go-med pay taxes at an average rate of 40%.


Suppose that Go-med is a joint venture owned by Insure and four other venturers, that the acquisition differentials are valid, and that it has not yet adopted IFRS 11: Joint rrangements.  Prepare a 20X8 consolidated income statement for Insure using proportionate consolidation.

Problem 3

On April 1 of the current year, Econ Ltd. ordered maps from a foreign supplier for 500,000 units of foreign currency (FC).  On April 2, Econ entered a forward contract as a cash flow hedge to acquire 500,000 FC on July 31 for $0.31.  On July 31, the maps arrived and Econ paid the supplier in full and settled the forward contract.  Econ has an April 30 year-end.

Spot Rate    Forward Rate
April 1 and 2    FC 1 = $0.280    FC 1 = $0.310
April 30    FC 1 = $0.270    FC 1 = $0.305
July 31    FC 1 = $0.320    FC 1 = $0.320


a) Make dated journal entries to record the transactions shown above.
b) Suppose that Econ did not enter into a forward contract.  Make dated journal entries to record the transactions above. 
c) Suppose that Econ had entered into a forward contract that was designated a fair value hedge.  Prepare dated journal entries to record the transactions above.

Problem 4

Golden Bells Inc. is a foreign subsidiary of Northern Bells Ltd., a Canadian company.  Northern Bells had purchased 90% of the outstanding shares of Golden Bells at the beginning of 20X9 for 20,160 foreign currency (FC) units.  At the acquisition date, Golden Bells’ balance sheet in FC units is as follows:

                                          DR          CR
Current monetary assets    14,000   
Inventory                          11,200   
Equipment (net)                28,000   
Current liabilities                                 12,600
Long term debt                                  22,400
Common shares                                14,000
Retained earnings              ______        4,200
                                       53,200        53,200

At the acquisition date, the only acquisition differential was in regard to the equipment, which had a fair value of 30,800 FC and an estimated remaining useful life of 10 years. 
The relevant exchange rates for 20X9 are as follows:
         January 1                    FC 1 = $1.10
         September 15                FC 1 = $1.20
         December 31                FC 1 = $1.25
         Average rate for 20X9            FC 1 = $1.18

Balance Sheets
December 31, 20X9
                                             Northern Bells Ltd.$                  Golden Bells Inc.FC
Current monetary assets                   44,173                                  23,800
Inventory                                         42,000                                  15,400
Investment in Golden Bells                  22,176                                         -
Equipment (net)                                 84,000                                  25,200
   Total assets                                    192,349                                  64,400
Current monetary liabilities                    36,400                                  16,800
Long-term debt                                   56,000                                  22,400
   Total liabilities                                   92,400                                   39,200
Shareholders’ equity:       
Common shares                                   42,000                                     14,000
Retained earnings                                 57,949                                     11,200
   Total shareholders’ equity                   99,949                                     25,200
Total liabilities and shareholders’ equity    192,349                                   64,400

Income Statements
Year Ended December 31, 20X9
                Northern Bells Ltd.$         Golden  Bells Inc. FC
Sales                     503,849                           140,000
Dividend income      6,300                                 ____-___
   Total revenue       510,149                           140,000
Cost of goods sold    252,000                           82,600
Operating expenses    217,000                          44,800
   Total expenses        469,000                         127,400
Net income                41,149                            12,600

At the end of 20X9, Northern Bells and Golden Bells declared dividends of $30,800 and 5,600 FC, respectively.

Golden Bells’ goods in inventory at the end of 20X9 were from a special purchase made September 15, 20X9.

Golden Bells had a goodwill impairment loss of 140 FC which occurred evenly throughout 20X9.

Northern Bell uses the entity theory method to consolidate its subsidiary.


Make Northern Bell’s consolidated financial statements for December 31, 20X9, assuming that Golden Bell’s functional currency is

a) the Canadian dollar, and 
b) the foreign currency unit.

Problem 5

Wise Owls, an NFPO, began operations at the beginning of 20X1 to provide free tutoring and homework assistance, as well as a nutrition program, to low-income immigrant children.  Local school board has provided Wise Owls with the use of a wing of a school at a heavily discounted rate of $1,000 per month.  During 20X1, Wise Owls rented the wing for the full year and plans to continue to do so till it could  construct its own building.  Wise Owls is funded initially by donations.

This year’s fundraiser was very successful and exceeded expectations.  Additionally to the net proceeds of $350,000 from the fundraising event, another $50,000 was pledged by attendees, but most of these pledges have not yet been collected.  They will probably be collected early next year.  Of the $50,000 pledged, $10,000 was pledged for the purchase of land, and Wise Owls received it a few days after its year-end.  Of the $350,000 raised, $40,000 was designated for the purchase of a tract of land on which the organization plans to erect a building for its programs.  Wise Owls still needs to raise another $10,000 before the land can be purchased.  If everything goes according to plan, it will be able to purchase the land for $60,000 within the first six months of 20X2.

Wise Owls is especially happy with its fundraiser because the government has committed to offer matching funds, to the maximum of $250,000, of the net proceeds raised for operations.  It received a letter from government two weeks after year-end advising it that its application had been approved and that it could expect the grant in six weeks.

Wise Owls has had good support from local community.  Four grocery stores in the area provided donations totaling $25,000 of food for Wise Owls’ nutrition program.  An office supply store provided $2,500 of school supplies and a card for $5,000 of photocopying services.

All of the people working at Wise Owls are volunteers except for full-time director and part-time volunteer coordinator.  During 20X1, the director was paid $70,000 and coordinator was paid $26,000. $2,000 of the amount paid to coordinator was an advance against her salary in January, 20X2. Gemerally, advances are not allowed; though, due to extenuating circumstances, the board allowed it.

During 20X1, Wise Owls spent $53,000 on food, $10,000 on school supplies, and $90,000 on other operating expenses.

Wise Owls would buy 40 laptop computers in next year for use in several of its programs. Director has negotiated a deal with a supplier to obtain the computers for $20,000.  The computers must be delivered in a month, with payment due on delivery.


Using the deferral method, make a statement of revenues and expenses and statement of modifications in net assets for Wise Owls for 20X1.

Cost Accounting, Accounting

  • Category:- Cost Accounting
  • Reference No.:- M91385

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