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 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
|
|
GreenTower
Ltd.
|
BlueLoft
Ltd.
|
|
Assets:
|
|
|
|
Current assets:
|
|
|
|
Cash
|
$ 156,000
|
$ 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
|
$ 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. 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) 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.