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Deck 4: Wholly-Owned Subsidiaries: Reporting Subsequent to Acquisition
ملء الشاشة (f)
سؤال
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سؤال
Waite Co.is a subsidiary of Star Ltd.During the year,Waite earned net income of $65,000.Star recorded this income on its books using the equity method.What elimination entry does Star have to make in the consolidation process with respect to this income?
A)
B)
C)
D)No entry is required under the equity method.
A)
B)
C)
D)No entry is required under the equity method.
سؤال
Coral Ltd.owns 100% of Ambrose Ltd.Coral uses the cost method to record this subsidiary.Coral received $150,000 in dividends from Ambrose.What journal entry should Coral make on its consolidation worksheet with respect to the dividends?
A)
B)
C)
D)
A)
B)
C)
D)
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A subsidiary sold goods to its parent company.At its year-end,the parent company still had some of the goods in inventory.Included in the value of these inventories is $15,000 of unrealized profits.What journal entry should be made to eliminate these unrealized profits?
A)
B)
C)
D)
A)
B)
C)
D)
سؤال
سؤال
On September 1,20X5,CanAir Limited decided to buy 100% of the shares outstanding of SkyAir Inc.for $900,000.Can Air will pay for this acquisition by using cash of $500,000 and issuing share capital for the remaining amount.The balances showing on the statement of financial position for the two companies at August 31,20X5 are as follows:
After a review of the financial assets and liabilities,CanAir determines that some of the assets of SkyAir have fair values different from their carrying values.These items are listed below:
• Land has a fair value of 225,000
• The building has a fair value of 1,090,000.The remaining useful life of the building is 20 years.
• Internet domain name has a fair value is $55,000.The domain name is estimated to have a useful life of 5 years.
• Customer lists has a fair value is $35,000.It is estimated that the customer lists will have a useful life of 7 years.
During the 20X9 fiscal year,the following events occurred:
1.On March 1,20X9,SkyAir sold land to CanAir for $390,000,which had a carrying value of $275,000.Can Air paid for this with $90,000 cash and a note payable for the difference.This note pays interest at 10% which is paid monthly.
2.CanAir provided management expertise to SkyAir and charged management fees of $890,000.
3.CanAir sold supplies (included in CanAir sales)to SkyAir for $200,000.CanAir charged SkyAir an amount that was 25% above costs.SkyAir still has supplies on hand of $70,000.
4.In 20X8,SkyAir had provided seat space on flights to Can Air for a value of $500,000.This amount was included in sales for SkyAir.Profit margin on these sales is 40%.At the end of August,20X8,CanAir still had an amount of $200,000 in these prepaid seats that had not yet been used.(CanAir includes this in inventory. )
Statements of Financial Position
As at August 31,20X9
Statements of Comprehensive Income
For the year ended August 31,20X9
Required:
Prepare the consolidated Statement of Comprehensive Income for the year ended August 31,20X9.
After a review of the financial assets and liabilities,CanAir determines that some of the assets of SkyAir have fair values different from their carrying values.These items are listed below:
• Land has a fair value of 225,000
• The building has a fair value of 1,090,000.The remaining useful life of the building is 20 years.
• Internet domain name has a fair value is $55,000.The domain name is estimated to have a useful life of 5 years.
• Customer lists has a fair value is $35,000.It is estimated that the customer lists will have a useful life of 7 years.
During the 20X9 fiscal year,the following events occurred:
1.On March 1,20X9,SkyAir sold land to CanAir for $390,000,which had a carrying value of $275,000.Can Air paid for this with $90,000 cash and a note payable for the difference.This note pays interest at 10% which is paid monthly.
2.CanAir provided management expertise to SkyAir and charged management fees of $890,000.
3.CanAir sold supplies (included in CanAir sales)to SkyAir for $200,000.CanAir charged SkyAir an amount that was 25% above costs.SkyAir still has supplies on hand of $70,000.
4.In 20X8,SkyAir had provided seat space on flights to Can Air for a value of $500,000.This amount was included in sales for SkyAir.Profit margin on these sales is 40%.At the end of August,20X8,CanAir still had an amount of $200,000 in these prepaid seats that had not yet been used.(CanAir includes this in inventory. )
Statements of Financial Position
As at August 31,20X9
Statements of Comprehensive Income
For the year ended August 31,20X9
Required:
Prepare the consolidated Statement of Comprehensive Income for the year ended August 31,20X9.
سؤال
On September 1,20X5,CanAir Limited decided to buy 100% of the shares outstanding of SkyAir Inc.for $900,000.Can Air will pay for this acquisition by using cash of $500,000 and issuing share capital for the remaining amount.The balances showing on the statement of financial position for the two companies at August 31,20X5 are as follows:
After a review of the financial assets and liabilities,CanAir determines that some of the assets of SkyAir have fair values different from their carrying values.These items are listed below:
• Land has a fair value of 225,000
• The building has a fair value of 1,090,000.The remaining useful life of the building is 20 years.
• Internet domain name has a fair value is $55,000.The domain name is estimated to have a useful life of 5 years.
• Customer lists has a fair value is $35,000.It is estimated that the customer lists will have a useful life of 7 years.
During the 20X9 fiscal year,the following events occurred:
1.On March 1,20X9,SkyAir sold land to CanAir for $390,000,which had a carrying value of $275,000.Can Air paid for this with $90,000 cash and a note payable for the difference.This note pays interest at 10% which is paid monthly.
2.CanAir provided management expertise to SkyAir and charged management fees of $890,000.
3.CanAir sold supplies (included in CanAir sales)to SkyAir for $200,000.CanAir charged SkyAir an amount that was 25% above costs.SkyAir still has supplies on hand of $70,000.
4.In 20X8,SkyAir had provided seat space on flights to Can Air for a value of $500,000.This amount was included in sales for SkyAir.Profit margin on these sales is 40%.At the end of August,20X8,CanAir still had an amount of $200,000 in these prepaid seats that had not yet been used.(CanAir includes this in inventory. )
Statements of Financial Position
As at August 31,20X9
Statements of Comprehensive Income
For the year ended August 31,20X9
Required:
Calculate the consolidated retained earnings as at August 31,20X9.
Prepare the consolidated Statement of Financial Position for the year ended August 31,20X9.
After a review of the financial assets and liabilities,CanAir determines that some of the assets of SkyAir have fair values different from their carrying values.These items are listed below:
• Land has a fair value of 225,000
• The building has a fair value of 1,090,000.The remaining useful life of the building is 20 years.
• Internet domain name has a fair value is $55,000.The domain name is estimated to have a useful life of 5 years.
• Customer lists has a fair value is $35,000.It is estimated that the customer lists will have a useful life of 7 years.
During the 20X9 fiscal year,the following events occurred:
1.On March 1,20X9,SkyAir sold land to CanAir for $390,000,which had a carrying value of $275,000.Can Air paid for this with $90,000 cash and a note payable for the difference.This note pays interest at 10% which is paid monthly.
2.CanAir provided management expertise to SkyAir and charged management fees of $890,000.
3.CanAir sold supplies (included in CanAir sales)to SkyAir for $200,000.CanAir charged SkyAir an amount that was 25% above costs.SkyAir still has supplies on hand of $70,000.
4.In 20X8,SkyAir had provided seat space on flights to Can Air for a value of $500,000.This amount was included in sales for SkyAir.Profit margin on these sales is 40%.At the end of August,20X8,CanAir still had an amount of $200,000 in these prepaid seats that had not yet been used.(CanAir includes this in inventory. )
Statements of Financial Position
As at August 31,20X9
Statements of Comprehensive Income
For the year ended August 31,20X9
Required:
Calculate the consolidated retained earnings as at August 31,20X9.
Prepare the consolidated Statement of Financial Position for the year ended August 31,20X9.
سؤال
On December 31,20X1,Dad Ltd.purchased 100% of the outstanding common shares of the Sad Ltd.for $9.5 million in cash.On that date,the shareholders' equity of Sad totaled $8 million and consisted of $1 million in no par common shares and $7 million in retained earnings.Both companies use the straight-line method to calculate depreciation.Goodwill,if any arises as a result of this business combination,is written down when there is impairment.Both Dad and Sad report under accounting standards for private enterprises.
For the year ending December 31,20X6,the statements of earnings for Dad and Sad were as follows:
As at December 31,20X6,the condensed statements of financial position for the two companies were as follows:
OTHER INFORMATION:
1.On December 31,20X1,Sad had a building with a fair value that was $300,000 greater than its carrying value.The building had an estimated remaining useful life of 20 years.
2.On December 31,20X1,Sad had inventory with a fair value that was $200,000 less than its carrying value.This inventory was sold in 20X3.
3.During 20X6,Dad sold merchandise to Sad for $100,000,a price that includes a gross profit of $40,000.During 20X6,40% of this merchandise was resold by Sad to third parties and the other 60% remains in its December 31,20X6 inventories.On December 31,20X5,the inventories of Sad contained merchandise purchased from Dad on which Dad had recognized a gross profit in the amount of $20,000.
4.During 20X6,Dad declared and paid dividends of $300,000 while Sad declared and paid dividends of $100,000.
5.Dad accounts for its investment in Sad using the cost method.
6.The retained earnings of Dad as at December 31,20x5 was $12,000,000.On that date,Sad had retained earnings of $9,800,000.Sad has not issued any common shares since its acquisition by Dad.
7.There were no specific events or circumstances between 20X2 and 20X6 to indicate any impairment of goodwill.
Required:
Calculate consolidated net income for the year ending December 31,20X6.
For the year ending December 31,20X6,the statements of earnings for Dad and Sad were as follows:
As at December 31,20X6,the condensed statements of financial position for the two companies were as follows:
OTHER INFORMATION:
1.On December 31,20X1,Sad had a building with a fair value that was $300,000 greater than its carrying value.The building had an estimated remaining useful life of 20 years.
2.On December 31,20X1,Sad had inventory with a fair value that was $200,000 less than its carrying value.This inventory was sold in 20X3.
3.During 20X6,Dad sold merchandise to Sad for $100,000,a price that includes a gross profit of $40,000.During 20X6,40% of this merchandise was resold by Sad to third parties and the other 60% remains in its December 31,20X6 inventories.On December 31,20X5,the inventories of Sad contained merchandise purchased from Dad on which Dad had recognized a gross profit in the amount of $20,000.
4.During 20X6,Dad declared and paid dividends of $300,000 while Sad declared and paid dividends of $100,000.
5.Dad accounts for its investment in Sad using the cost method.
6.The retained earnings of Dad as at December 31,20x5 was $12,000,000.On that date,Sad had retained earnings of $9,800,000.Sad has not issued any common shares since its acquisition by Dad.
7.There were no specific events or circumstances between 20X2 and 20X6 to indicate any impairment of goodwill.
Required:
Calculate consolidated net income for the year ending December 31,20X6.
سؤال
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In 20X1,a parent company sold a tract of land to its subsidiary for $100,000,resulting in a $30,000 loss.The subsidiary's plans for the land did not materialize and it still owned the land at the end of 20X4.At the end of 20X4,what consolidating journal entry should be made with respect to the loss associated with the sale of land?
A)
B)
C)
D)
A)
B)
C)
D)
سؤال
On December 31,20X2,the Pipe Ltd.purchased 100% of the outstanding common shares of the Fitter Ltd.for $10.5 million in cash.On that date,the shareholders' equity of Fitter totaled $8 million and consisted of $1 million in no par common shares and $7 million in retained earnings.Both companies use the straight-line method to calculate depreciation and amortization.Goodwill,if any arises as a result of this business combination,is written down if there is a permanent impairment in its value.
For the year ending December 31,20X6,the income statements for Pipe and Fitter were as follows:
As at December 31,20X6,the condensed balance sheets for the two companies were as follows:
OTHER INFORMATION:
1.On December 31,20X2,Fitter had a building with a fair value that was $500,000 greater than its carrying value.The building had an estimated remaining useful life of 20 years.
2.On December 31,20X2,Fitter had trademark that was not reported on its balance sheet,but had a fair value that was $200,000.The trademark is amortized over 10 years.
3.During 20X6,Fitter sold merchandise to Pipe for $100,000,a price that includes a gross profit of $40,000.During 20X6,20% of this merchandise was resold by Pipe and the other 80% remains in its December 31,20X6 inventories.On December 31,20X5,the inventories of Pipe contained merchandise purchased from Fitter on which Fitter had recognized a gross profit in the amount of $50,000.
4.During 20X6,it was determined that the goodwill arising at the date of acquisition was impaired and that an impairment loss of $70,000 should be recorded.No impairment had been charged in earlier years.
5.During 20X6,Pipe declared and paid dividends of $300,000 while Fitter declared and paid dividends of $100,000.
6.Pipe accounts for its investment in Fitter using the cost method.
The retained earnings of Pipe as at December 31,20X5 equalled $12,000,000.On that date,Fitter had retained earnings of $9,800,000.Fitter has not issued any common stock since its acquisition by Pipe.
Required:
Prepare,in good form,a consolidated statement of comprehensive income for the year ended December 31,20X6.
For the year ending December 31,20X6,the income statements for Pipe and Fitter were as follows:
As at December 31,20X6,the condensed balance sheets for the two companies were as follows:
OTHER INFORMATION:
1.On December 31,20X2,Fitter had a building with a fair value that was $500,000 greater than its carrying value.The building had an estimated remaining useful life of 20 years.
2.On December 31,20X2,Fitter had trademark that was not reported on its balance sheet,but had a fair value that was $200,000.The trademark is amortized over 10 years.
3.During 20X6,Fitter sold merchandise to Pipe for $100,000,a price that includes a gross profit of $40,000.During 20X6,20% of this merchandise was resold by Pipe and the other 80% remains in its December 31,20X6 inventories.On December 31,20X5,the inventories of Pipe contained merchandise purchased from Fitter on which Fitter had recognized a gross profit in the amount of $50,000.
4.During 20X6,it was determined that the goodwill arising at the date of acquisition was impaired and that an impairment loss of $70,000 should be recorded.No impairment had been charged in earlier years.
5.During 20X6,Pipe declared and paid dividends of $300,000 while Fitter declared and paid dividends of $100,000.
6.Pipe accounts for its investment in Fitter using the cost method.
The retained earnings of Pipe as at December 31,20X5 equalled $12,000,000.On that date,Fitter had retained earnings of $9,800,000.Fitter has not issued any common stock since its acquisition by Pipe.
Required:
Prepare,in good form,a consolidated statement of comprehensive income for the year ended December 31,20X6.
سؤال
On December 31,20X5,Space Co.purchased 100% of the outstanding common shares of Shuttle Ltd.for $1,200,000 in shares and $200,000 in cash.The statements of financial position of Space and Shuttle immediately before the acquisition and issuance of the notes payable were as follows (in 000s): 
The difference in the carrying value and the fair value of the capital assets for Shuttle relates to its office building.This building was originally purchased by Shuttle in January,20X1 and is being depreciated over 30 years.
During 20X6,the year following the acquisition,the following occurred:
1.Shuttle borrowed $350,000 from Space on June 1,20X6,and was charged interest at 10% per annum,which it paid on a monthly basis.There were no repayments of principal made during the remaining of the year.
2.Throughout the year,Shuttle purchased merchandise of $800,000 from Space.Space's gross margin is 30% of selling price.At December 31,20X6,Shuttle still owed Space $250,000 on this merchandise.75% of this merchandise was resold by Shuttle prior to December 31,20X6.
3.Shuttle paid dividends of $250,000 at the end of 20X6 and Space paid dividends of $500,000.
During 20X7,the following occurred:
1.Shuttle paid $150,000 on the loan payable to Space on May 30,20X7.
2.Throughout the year,Shuttle purchased merchandise of $1,000,000 from Space.Space's gross margin is 30% of selling price.At December 31,20X6,Shuttle still owed Space $150,000 on this merchandise.85% of this merchandise was resold by Shuttle prior to December 31,20X7.
3.Shuttle paid dividends of $250,000 at the end of 20X7 and Space paid dividends of $500,000.
Required:
Space has decided to record its investment in Shuttle using the equity method.Determine the balance in the investment in Shuttle account at December 31,20X7 using the equity method.
Prepare the statement of financial position and the statement of comprehensive income for the year ended December 31,20X7 for Space assuming it accounts for its investment in Shuttle using the equity method.
The difference in the carrying value and the fair value of the capital assets for Shuttle relates to its office building.This building was originally purchased by Shuttle in January,20X1 and is being depreciated over 30 years.
During 20X6,the year following the acquisition,the following occurred:
1.Shuttle borrowed $350,000 from Space on June 1,20X6,and was charged interest at 10% per annum,which it paid on a monthly basis.There were no repayments of principal made during the remaining of the year.
2.Throughout the year,Shuttle purchased merchandise of $800,000 from Space.Space's gross margin is 30% of selling price.At December 31,20X6,Shuttle still owed Space $250,000 on this merchandise.75% of this merchandise was resold by Shuttle prior to December 31,20X6.
3.Shuttle paid dividends of $250,000 at the end of 20X6 and Space paid dividends of $500,000.
During 20X7,the following occurred:
1.Shuttle paid $150,000 on the loan payable to Space on May 30,20X7.
2.Throughout the year,Shuttle purchased merchandise of $1,000,000 from Space.Space's gross margin is 30% of selling price.At December 31,20X6,Shuttle still owed Space $150,000 on this merchandise.85% of this merchandise was resold by Shuttle prior to December 31,20X7.
3.Shuttle paid dividends of $250,000 at the end of 20X7 and Space paid dividends of $500,000.
Required:
Space has decided to record its investment in Shuttle using the equity method.Determine the balance in the investment in Shuttle account at December 31,20X7 using the equity method.
Prepare the statement of financial position and the statement of comprehensive income for the year ended December 31,20X7 for Space assuming it accounts for its investment in Shuttle using the equity method.
سؤال
سؤال
سؤال
سؤال
On December 31,20X2,the Pipe Ltd.purchased 100% of the outstanding common shares of the Fitter Ltd.for $10.5 million in cash.On that date,the shareholders' equity of Fitter totaled $8 million and consisted of $1 million in no par common shares and $7 million in retained earnings.Both companies use the straight-line method to calculate depreciation and amortization.Goodwill,if any arises as a result of this business combination,is written down if there is a permanent impairment in its value.
For the year ending December 31,20X6,the income statements for Pipe and Fitter were as follows:
OTHER INFORMATION:
1.On December 31,20X2,Fitter had a building with a fair value that was $500,000 greater than its carrying value.The building had an estimated remaining useful life of 20 years.
2.On December 31,20X2,Fitter had trademark that was not reported on its balance sheet,but had a fair value that was $200,000.The trademark is amortized over 10 years.
3.During 20X6,Fitter sold merchandise to Pipe for $100,000,a price that includes a gross profit of $40,000.During 20X6,20% of this merchandise was resold by Pipe and the other 80% remains in its December 31,20X6 inventories.On December 31,20X5,the inventories of Pipe contained merchandise purchased from Fitter on which Fitter had recognized a gross profit in the amount of $50,000.
4.During 20X6,it was determined that the goodwill arising at the date of acquisition was impaired and that an impairment loss of $70,000 should be recorded.No impairment had been charged in earlier years.
5.During 20X6,Pipe declared and paid dividends of $300,000 while Fitter declared and paid dividends of $100,000.
6.Pipe accounts for its investment in Fitter using the cost method.
The retained earnings of Pipe as at December 31,20X5 equalled $12,000,000.On that date,Fitter had retained earnings of $9,800,000.Fitter has not issued any common stock since its acquisition by Pipe.
Required:
Calculate the consolidated retained earnings at December 31,20X5 and December 31,20X6.Prepare the consolidated statement of changes equity-partial statement showing the change in retained earnings for December 31,20X6 for Pipe.
For the year ending December 31,20X6,the income statements for Pipe and Fitter were as follows:
OTHER INFORMATION:
1.On December 31,20X2,Fitter had a building with a fair value that was $500,000 greater than its carrying value.The building had an estimated remaining useful life of 20 years.
2.On December 31,20X2,Fitter had trademark that was not reported on its balance sheet,but had a fair value that was $200,000.The trademark is amortized over 10 years.
3.During 20X6,Fitter sold merchandise to Pipe for $100,000,a price that includes a gross profit of $40,000.During 20X6,20% of this merchandise was resold by Pipe and the other 80% remains in its December 31,20X6 inventories.On December 31,20X5,the inventories of Pipe contained merchandise purchased from Fitter on which Fitter had recognized a gross profit in the amount of $50,000.
4.During 20X6,it was determined that the goodwill arising at the date of acquisition was impaired and that an impairment loss of $70,000 should be recorded.No impairment had been charged in earlier years.
5.During 20X6,Pipe declared and paid dividends of $300,000 while Fitter declared and paid dividends of $100,000.
6.Pipe accounts for its investment in Fitter using the cost method.
The retained earnings of Pipe as at December 31,20X5 equalled $12,000,000.On that date,Fitter had retained earnings of $9,800,000.Fitter has not issued any common stock since its acquisition by Pipe.
Required:
Calculate the consolidated retained earnings at December 31,20X5 and December 31,20X6.Prepare the consolidated statement of changes equity-partial statement showing the change in retained earnings for December 31,20X6 for Pipe.
سؤال
On September 1,20X5,CanAir Limited decided to buy 100% of the shares outstanding of SkyAir Inc.for $500,000.Can Air will pay for this acquisition by using cash of $500,000.The balances showing on the statement of financial position for the two companies at August 31,20X5 are as follows:
After a review of the financial assets and liabilities,CanAir determines that some of the assets of SkyAir have fair values different from their carrying values.These items are listed below:
• The building has a fair value of 1,090,000.The remaining useful life of the building is 20 years.
• Internet domain name has a fair value is $55,000.The domain name is estimated to have a useful life of 5 years.
• Customer lists has a fair value is $35,000.It is estimated that the customer lists will have a useful life of 7 years.
During the 20X9 fiscal year,the following events occurred:
1.On March 1,20X9,SkyAir sold land to CanAir for $390,000,which had a carrying value of $275,000.Can Air paid for this with $90,000 cash and a note payable for the difference.This note pays interest at 10% which is paid monthly.
2.CanAir provided management expertise to SkyAir and charged management fees of $890,000.
3.CanAir sold supplies (included in CanAir sales)to SkyAir for $200,000.CanAir charged SkyAir an amount that was 25% above costs.SkyAir still has supplies on hand of $70,000.
4.In 20X8,SkyAir had provided seat space on flights to Can Air for a value of $500,000.This amount was included in sales for SkyAir.Profit margin on these sales is 40%.At the end of August,20X8,CanAir still had an amount of $200,000 in these prepaid seats that had not yet been used.(CanAir includes this in inventory. )
Statements of Financial Position
As at August 31,20X9
Statements of Comprehensive Income
For the year ended August 31,20X9
Required:
CanAir would like to report this investment in SkyAir using the equity method.Determine the income from this equity investment for the year.
Determine the balance in the Investment in SkyAir account if the company used the equity method.
After a review of the financial assets and liabilities,CanAir determines that some of the assets of SkyAir have fair values different from their carrying values.These items are listed below:
• The building has a fair value of 1,090,000.The remaining useful life of the building is 20 years.
• Internet domain name has a fair value is $55,000.The domain name is estimated to have a useful life of 5 years.
• Customer lists has a fair value is $35,000.It is estimated that the customer lists will have a useful life of 7 years.
During the 20X9 fiscal year,the following events occurred:
1.On March 1,20X9,SkyAir sold land to CanAir for $390,000,which had a carrying value of $275,000.Can Air paid for this with $90,000 cash and a note payable for the difference.This note pays interest at 10% which is paid monthly.
2.CanAir provided management expertise to SkyAir and charged management fees of $890,000.
3.CanAir sold supplies (included in CanAir sales)to SkyAir for $200,000.CanAir charged SkyAir an amount that was 25% above costs.SkyAir still has supplies on hand of $70,000.
4.In 20X8,SkyAir had provided seat space on flights to Can Air for a value of $500,000.This amount was included in sales for SkyAir.Profit margin on these sales is 40%.At the end of August,20X8,CanAir still had an amount of $200,000 in these prepaid seats that had not yet been used.(CanAir includes this in inventory. )
Statements of Financial Position
As at August 31,20X9
Statements of Comprehensive Income
For the year ended August 31,20X9
Required:
CanAir would like to report this investment in SkyAir using the equity method.Determine the income from this equity investment for the year.
Determine the balance in the Investment in SkyAir account if the company used the equity method.
سؤال
On December 31,20X5,Space Co.purchased 100% of the outstanding common shares of Shuttle Ltd.for $1,200,000 in shares and $200,000 in cash.The statements of financial position of Space and Shuttle immediately before the acquisition and issuance of the notes payable were as follows (in 000s): 
The difference in the carrying value and the fair value of the capital assets for Shuttle relates to its office building.This building was originally purchased by Shuttle in January,20X1 and is being depreciated over 30 years.
During 20X6,the year following the acquisition,the following occurred:
1.Shuttle borrowed $350,000 from Space on June 1,20X6,and was charged interest at 10% per annum,which it paid on a monthly basis.There were no repayments of principal made during the remaining of the year.
2.Throughout the year,Shuttle purchased merchandise of $800,000 from Space.Space's gross margin is 30% of selling price.At December 31,20X6,Shuttle still owed Space $250,000 on this merchandise.75% of this merchandise was resold by Shuttle prior to December 31,20X6.
3.Shuttle paid dividends of $250,000 at the end of 20X6 and Space paid dividends of $500,000.
During 20X7,the following occurred:
1.Shuttle paid $150,000 on the loan payable to Space on May 30,20X7.
2.Throughout the year,Shuttle purchased merchandise of $1,000,000 from Space.Space's gross margin is 30% of selling price.At December 31,20X6,Shuttle still owed Space $150,000 on this merchandise.85% of this merchandise was resold by Shuttle prior to December 31,20X7.
3.Shuttle paid dividends of $250,000 at the end of 20X7 and Space paid dividends of $500,000.
Required:
Calculate the consolidated retained earnings for Space as at December 31,20X7.
Prepare the consolidated statement of financial position for the year ended December 31,20X7 for Space.
The difference in the carrying value and the fair value of the capital assets for Shuttle relates to its office building.This building was originally purchased by Shuttle in January,20X1 and is being depreciated over 30 years.
During 20X6,the year following the acquisition,the following occurred:
1.Shuttle borrowed $350,000 from Space on June 1,20X6,and was charged interest at 10% per annum,which it paid on a monthly basis.There were no repayments of principal made during the remaining of the year.
2.Throughout the year,Shuttle purchased merchandise of $800,000 from Space.Space's gross margin is 30% of selling price.At December 31,20X6,Shuttle still owed Space $250,000 on this merchandise.75% of this merchandise was resold by Shuttle prior to December 31,20X6.
3.Shuttle paid dividends of $250,000 at the end of 20X6 and Space paid dividends of $500,000.
During 20X7,the following occurred:
1.Shuttle paid $150,000 on the loan payable to Space on May 30,20X7.
2.Throughout the year,Shuttle purchased merchandise of $1,000,000 from Space.Space's gross margin is 30% of selling price.At December 31,20X6,Shuttle still owed Space $150,000 on this merchandise.85% of this merchandise was resold by Shuttle prior to December 31,20X7.
3.Shuttle paid dividends of $250,000 at the end of 20X7 and Space paid dividends of $500,000.
Required:
Calculate the consolidated retained earnings for Space as at December 31,20X7.
Prepare the consolidated statement of financial position for the year ended December 31,20X7 for Space.
سؤال
سؤال
On December 31,20X5,Space Co.purchased 100% of the outstanding common shares of Shuttle Ltd.for $1,200,000 in shares and $200,000 in cash.The statements of financial position of Space and Shuttle immediately before the acquisition and issuance of the notes payable were as follows (in 000s): 
The difference in the carrying value and the fair value of the capital assets for Shuttle relates to its office building.This building was originally purchased by Shuttle in January,20X1 and is being depreciated over 30 years.
During 20X6,the year following the acquisition,the following occurred:
1.Shuttle borrowed $350,000 from Space on June 1,20X6,and was charged interest at 10% per annum,which it paid on a monthly basis.There were no repayments of principal made during the remaining of the year.
2.Throughout the year,Shuttle purchased merchandise of $800,000 from Space.Space's gross margin is 30% of selling price.At December 31,20X6,Shuttle still owed Space $250,000 on this merchandise.75% of this merchandise was resold by Shuttle prior to December 31,20X6.
3.Shuttle paid dividends of $250,000 at the end of 20X6 and Space paid dividends of $500,000.
During 20X7,the following occurred:
1.Shuttle paid $150,000 on the loan payable to Space on May 30,20X7.
2.Throughout the year,Shuttle purchased merchandise of $1,000,000 from Space.Space's gross margin is 30% of selling price.At December 31,20X6,Shuttle still owed Space $150,000 on this merchandise.85% of this merchandise was resold by Shuttle prior to December 31,20X7.
3.Shuttle paid dividends of $250,000 at the end of 20X7 and Space paid dividends of $500,000.
Required:
Prepare the consolidated statement of comprehensive income for the year ended December 31,20X7 for Space.
The difference in the carrying value and the fair value of the capital assets for Shuttle relates to its office building.This building was originally purchased by Shuttle in January,20X1 and is being depreciated over 30 years.
During 20X6,the year following the acquisition,the following occurred:
1.Shuttle borrowed $350,000 from Space on June 1,20X6,and was charged interest at 10% per annum,which it paid on a monthly basis.There were no repayments of principal made during the remaining of the year.
2.Throughout the year,Shuttle purchased merchandise of $800,000 from Space.Space's gross margin is 30% of selling price.At December 31,20X6,Shuttle still owed Space $250,000 on this merchandise.75% of this merchandise was resold by Shuttle prior to December 31,20X6.
3.Shuttle paid dividends of $250,000 at the end of 20X6 and Space paid dividends of $500,000.
During 20X7,the following occurred:
1.Shuttle paid $150,000 on the loan payable to Space on May 30,20X7.
2.Throughout the year,Shuttle purchased merchandise of $1,000,000 from Space.Space's gross margin is 30% of selling price.At December 31,20X6,Shuttle still owed Space $150,000 on this merchandise.85% of this merchandise was resold by Shuttle prior to December 31,20X7.
3.Shuttle paid dividends of $250,000 at the end of 20X7 and Space paid dividends of $500,000.
Required:
Prepare the consolidated statement of comprehensive income for the year ended December 31,20X7 for Space.
سؤال
On December 31,20X1,the Dad Ltd.purchased 100% of the outstanding common shares of the Sad Ltd.for $9.5 million in cash.On that date,the shareholders' equity of Sad totaled $8 million and consisted of $1 million in no par common shares and $7 million in retained earnings.Both companies use the straight-line method to calculate depreciation.Goodwill,if any arises as a result of this business combination,is written down if there is a permanent impairment in its value.
For the year ending December 31,20X6,the statements of comprehensive income for Dad and Sad were as follows:
As at December 31,20X6,the condensed statements of financial position for the two companies were as follows:
OTHER INFORMATION:
1.On December 31,20X1,Sad had a building with a fair value that was $300,000 greater than its carrying value.The building had an estimated remaining useful life of 20 years.
2.On December 31,20X1,Sad had inventory with a fair value that was $200,000 less than its carrying value.This inventory was sold in 20X3.
3.During 20X6,Dad sold merchandise to Sad for $100,000,a price that includes a gross profit of $40,000.During 20X6,40% of this merchandise was resold by Sad to third parties and the other 60% remains in its December 31,20X6 inventories.On December 31,20X5,the inventories of Sad contained merchandise purchased from Dad on which Dad had recognized a gross profit in the amount of $20,000.
4.During 20X6,Dad declared and paid dividends of $300,000 while Sad declared and paid dividends of $100,000.
5.Dad accounts for its investment in Sad using the cost method.
6.The retained earnings of Dad as at December 31,20x5 was $12,000,000.On that date,Sad had retained earnings of $9,800,000.Sad has not issued any common shares since its acquisition by Dad.
7.There were no specific events or circumstances between 20X2 and 20X6 to indicate any impairment of goodwill.
The retained earnings of Dad as at December 31,20X5 equalled $12,000,000.On that date,Sad had retained earnings of $9,800,000.Sad has not issued any common shares since its acquisition by Dad.
Required:
Calculate the consolidated retained earnings at December 31,20X6.
For the year ending December 31,20X6,the statements of comprehensive income for Dad and Sad were as follows:
As at December 31,20X6,the condensed statements of financial position for the two companies were as follows:
OTHER INFORMATION:
1.On December 31,20X1,Sad had a building with a fair value that was $300,000 greater than its carrying value.The building had an estimated remaining useful life of 20 years.
2.On December 31,20X1,Sad had inventory with a fair value that was $200,000 less than its carrying value.This inventory was sold in 20X3.
3.During 20X6,Dad sold merchandise to Sad for $100,000,a price that includes a gross profit of $40,000.During 20X6,40% of this merchandise was resold by Sad to third parties and the other 60% remains in its December 31,20X6 inventories.On December 31,20X5,the inventories of Sad contained merchandise purchased from Dad on which Dad had recognized a gross profit in the amount of $20,000.
4.During 20X6,Dad declared and paid dividends of $300,000 while Sad declared and paid dividends of $100,000.
5.Dad accounts for its investment in Sad using the cost method.
6.The retained earnings of Dad as at December 31,20x5 was $12,000,000.On that date,Sad had retained earnings of $9,800,000.Sad has not issued any common shares since its acquisition by Dad.
7.There were no specific events or circumstances between 20X2 and 20X6 to indicate any impairment of goodwill.
The retained earnings of Dad as at December 31,20X5 equalled $12,000,000.On that date,Sad had retained earnings of $9,800,000.Sad has not issued any common shares since its acquisition by Dad.
Required:
Calculate the consolidated retained earnings at December 31,20X6.
سؤال
Franklin Ltd. ,a subsidiary of Frayer Ltd. ,sold $500,000 of goods to its parent company in 20X1.At the end of 20X1,some of the goods were not sold and there was $90,000 of unrealized profit associated with these goods.The goods were sold in 20X2.At the end of 20X2,which of the following consolidating entries should be made with respect to the unrealized profits?
A)
B)
C)
D)
A)
B)
C)
D)
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ملء الشاشة (f)
Deck 4: Wholly-Owned Subsidiaries: Reporting Subsequent to Acquisition
1
Under the direct method,what values should be entered for the assets,liabilities,and shareholders' equity to start the consolidation process?
A)Carrying values for both the parent and the subsidiary companies
B)Carrying values for the parent company and fair values for the subsidiary company
C)Fair values for the parent company and carrying values for the subsidiary company
D)Fair values for both the parent and the subsidiary companies
A)Carrying values for both the parent and the subsidiary companies
B)Carrying values for the parent company and fair values for the subsidiary company
C)Fair values for the parent company and carrying values for the subsidiary company
D)Fair values for both the parent and the subsidiary companies
A
2
Piri Ltd.acquired 100% of the commons shares of Golden Co.This business combination resulted in $100,000 of goodwill.Piri allocated the goodwill to three cash-generating units.At its year-end,Piri conducts a goodwill impairment test.Which of the following statements about the impairment test is true?
A)The impairment test is applied to Golden Co.as a whole.
B)The impairment test is applied to the business combination as a whole.
C)The impairment test is applied to each of the three cash-generating units to which goodwill has been allocated.
D)Piri is not required to conduct an impairment test unless its circumstances have changed materially from its previous year.
A)The impairment test is applied to Golden Co.as a whole.
B)The impairment test is applied to the business combination as a whole.
C)The impairment test is applied to each of the three cash-generating units to which goodwill has been allocated.
D)Piri is not required to conduct an impairment test unless its circumstances have changed materially from its previous year.
C
3
Waite Co.is a subsidiary of Star Ltd.During the year,Waite earned net income of $65,000.Star recorded this income on its books using the equity method.What elimination entry does Star have to make in the consolidation process with respect to this income?
A)
B)
C)
D)No entry is required under the equity method.
A)
B)
C)
D)No entry is required under the equity method.
B
4
Coral Ltd.owns 100% of Ambrose Ltd.Coral uses the cost method to record this subsidiary.Coral received $150,000 in dividends from Ambrose.What journal entry should Coral make on its consolidation worksheet with respect to the dividends?
A)
B)
C)
D)
A)
B)
C)
D)
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5
What does "one-line consolidation" refer to?
A)Cost method
B)Equity method
C)Direct method of consolidation
D)Worksheet method of consolidation
A)Cost method
B)Equity method
C)Direct method of consolidation
D)Worksheet method of consolidation
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6
DC Company purchased 100% of the outstanding common shares of FA Company on December 31,20X3 for $170,000.At that date,FA had $100,000 of outstanding common stock and retained earnings of $30,000.It was agreed that the net assets were fairly valued except that the fair value of the capital assets exceeded their net book value by $20,000 and the carrying value of the inventory exceeded its fair value by $10,000.The capital assets had a remaining useful life of eight years as of the acquisition date and have no salvage value.Inventory turns over four times a year.What adjustment should be made to the consolidated financial statements for the year ended December 31,20X6 for the fair value increment related to the capital assets?
A)The retained earnings at January 1,20X6 will be increased by $20,000.
B)Amortization expense on the capital assets for 20X6 will be increased by $2,500.
C)Amortization expense on the capital assets for 20X6 will be increased by $7,500.
D)Retained earnings at the end of 20X6 will be increased by $12,500.
A)The retained earnings at January 1,20X6 will be increased by $20,000.
B)Amortization expense on the capital assets for 20X6 will be increased by $2,500.
C)Amortization expense on the capital assets for 20X6 will be increased by $7,500.
D)Retained earnings at the end of 20X6 will be increased by $12,500.
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7
The goodwill impairment test does not involve ________.
A)allocation of goodwill to reporting units
B)elimination of all goodwill as a consequence
C)estimation and judgement on the part of management
D)an opportunity for a "big bath"
A)allocation of goodwill to reporting units
B)elimination of all goodwill as a consequence
C)estimation and judgement on the part of management
D)an opportunity for a "big bath"
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8
Mitzy's Muffins Ltd.purchased a commercial baking system for $150,000 at the beginning of 20X1.The estimated economic life of the system is 10 years and Mitzy's uses straight-line amortization.At the beginning of 20X3,Delicious Bakeries Ltd.acquired Mitzi's in a business combination.At the time of acquisition,Mitzi's baking system had a fair value of $140,000.At the end of 20X3,how much amortization expense should Mitzi report?
A)$0
B)$14,000
C)$15,000
D)$17,500
A)$0
B)$14,000
C)$15,000
D)$17,500
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9
A parent company can record an investment in its subsidiary under either the cost or equity method.Which of the following statements about consolidated net income is true?
A)Consolidated net income is higher if the parent company uses the equity method rather than the cost method.
B)Consolidated net income is higher if the parent company uses the cost method rather than the equity method.
C)Consolidated net income is higher if the parent company uses the equity method only if the subsidiary is profitable and has not paid any dividends.
D)Consolidated net income is the same under both methods.
A)Consolidated net income is higher if the parent company uses the equity method rather than the cost method.
B)Consolidated net income is higher if the parent company uses the cost method rather than the equity method.
C)Consolidated net income is higher if the parent company uses the equity method only if the subsidiary is profitable and has not paid any dividends.
D)Consolidated net income is the same under both methods.
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10
DIY Ltd.owns 20 subsidiary companies.Most of the subsidiaries are hardware stores operating in rural areas.One of the subsidiaries has been having financial difficulties and has finally decided to cease operations.Which of the following statements about DIY's consolidated financial statements is true?
A)DIY should report this as a discontinued operation.
B)DIY should report any losses from this as part of its normal operating activities.
C)Whether DIY treats this as a discontinued operation or not depends on if it used the cost method or the equity method to record the subsidiary.
D)DIY is not required to disclose anything about this closure.
A)DIY should report this as a discontinued operation.
B)DIY should report any losses from this as part of its normal operating activities.
C)Whether DIY treats this as a discontinued operation or not depends on if it used the cost method or the equity method to record the subsidiary.
D)DIY is not required to disclose anything about this closure.
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11
DC Company purchased 100% of the outstanding common shares of FA Company on December 31,20X3 for $170,000.At that date,FA had $100,000 of outstanding common stock and retained earnings of $30,000.It was agreed that the net assets were fairly valued except that the fair value of the capital assets exceeded their net book value by $20,000 and the carrying value of the inventory exceeded its fair value by $10,000.The capital assets had a remaining useful life of eight years as of the acquisition date and have no salvage value.Inventory turns over four times a year.It is now 20X6 and DC has been very pleased with how profitable its investment in FA has been.On DC's consolidated financial statements at December 31,20X6,what balance should be reported for goodwill?
A)$10,000
B)$30,000
C)$40,000
D)$70,000
A)$10,000
B)$30,000
C)$40,000
D)$70,000
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12
Paranich Co.acquired Crowley Co.in a business combination at December 31,20X4.Crowley has a capital asset that it has been amortizing at a rate of $10,000 per year.At the time of the acquisition,the asset had a book value of $70,000 and a fair value of $77,000.The asset has a remaining life of 7 years.With respect to this asset,how much amortization expense should Paranich report on its December 31,20X5 consolidated financial statements?
A)$ 1,000
B)$ 7,700
C)$10,000
D)$11,000
A)$ 1,000
B)$ 7,700
C)$10,000
D)$11,000
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13
Inventory was acquired as part of a business combination at the end of 20X1.The inventory was sold in 20X2.How should the fair value increment for the inventory at acquisition be treated for consolidation at the end of 20X2?
A)It should be added to inventory.
B)It should be added to sales.
C)It should be added to the cost of goods sold.
D)It should be added to retained earnings.
A)It should be added to inventory.
B)It should be added to sales.
C)It should be added to the cost of goods sold.
D)It should be added to retained earnings.
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14
A company has a subsidiary that has an intangible capital asset.It has not been recorded on the subsidiary's books,but at the date of acquisition,the asset had a fair value of $200,000 and an indefinite economic life.How should the company show the asset on its consolidated statement of financial position?
A)$200,000 less any impairment losses
B)$200,000 less accumulated amortization (calculated over 10 years)and any impairment losses
C)$200,000 less accumulated amortization (calculated over 40 years)and any impairment losses
D)The company should not show the asset on the consolidated financial statement as the subsidiary does not do so.
A)$200,000 less any impairment losses
B)$200,000 less accumulated amortization (calculated over 10 years)and any impairment losses
C)$200,000 less accumulated amortization (calculated over 40 years)and any impairment losses
D)The company should not show the asset on the consolidated financial statement as the subsidiary does not do so.
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15
Mitzy's Muffins Ltd.purchased a commercial baking system for $150,000 at the beginning of 20X1.The estimated economic life of the system is 10 years and Mitzy's uses straight-line amortization.At the beginning of 20X3,Delicious Bakeries Ltd.acquired Mitzi's in a business combination.At the time of the acquisition,Mitzi's baking system had a fair value of $140,000.With respect to the baking system,how much amortization expense should Delicious Bakeries report on its consolidated financial statements at the end of 20X3?
A)$ 2,500
B)$14,000
C)$15,000
D)$17,500
A)$ 2,500
B)$14,000
C)$15,000
D)$17,500
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16
DC Company purchased 100% of the outstanding common shares of FA Company on December 31,20X3 for $170,000.At that date,FA had $100,000 of outstanding common stock and retained earnings of $30,000.It was agreed that the net assets were fairly valued except that the fair value of the capital assets exceeded their net book value by $20,000 and the carrying value of the inventory exceeded its fair value by $10,000.The capital assets had a remaining useful life of eight years as of the acquisition date and have no salvage value.Inventory turns over four times a year.What adjustment should be made to the consolidated financial statements for the year ended December 31,20X4 for the difference in inventory valuation?
A)Inventory at December 31,20X4 will be decreased by $10,000.
B)Cost of goods sold for 20X4 will be increased by $10,000.
C)Cost of goods sold for 20X4 will be decreased by $10,000.
D)Retained earnings at the end of 20X4 will be decreased by $10,000.
A)Inventory at December 31,20X4 will be decreased by $10,000.
B)Cost of goods sold for 20X4 will be increased by $10,000.
C)Cost of goods sold for 20X4 will be decreased by $10,000.
D)Retained earnings at the end of 20X4 will be decreased by $10,000.
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17
On January 1,20X3,Dwayne Ltd.formed Carlos Co. ,a 100% owned subsidiary.During 20X6,Dwayne sold Carlos $100,000 in goods.The unrealized profit in Carlos' inventories was $20,000 at December 31,20X5 and $25,000 at December 31,20X6.Ignoring income taxes,what adjustment should be made to the consolidated financial statements for the year ended December 31,20X6 to reflect the unrealized profit in Carlos' beginning inventory?
A)Inventory at December 31,20X6 should be decreased by $20,000.
B)Cost of goods sold for 20X6 will be decreased by $20,000.
C)Retained earnings at the end of 20X6 will be increased by $20,000.
D)Retained earnings at the end of 20X6 will be decreased by $20,000.
A)Inventory at December 31,20X6 should be decreased by $20,000.
B)Cost of goods sold for 20X6 will be decreased by $20,000.
C)Retained earnings at the end of 20X6 will be increased by $20,000.
D)Retained earnings at the end of 20X6 will be decreased by $20,000.
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18
Amber Ltd.acquired Luna Ltd.in a business combination.One of the main reasons for the acquisition is that Amber wanted access to Luna's extensive customer list.The list is not recorded on Luna's books and has an estimated value of $100,000 and an estimated life of 7 years.On Amber's consolidated statement of financial position,what value should be shown for Luna's customer list?
A)$0,since it was not recorded on Luna's books
B)$100,000 less any impairment losses
C)$100,000 less any accumulated amortization (calculated over 5 years)and any impairment losses
D)$100,000 less any accumulated amortization (calculated over 7 years)and any impairment losses
A)$0,since it was not recorded on Luna's books
B)$100,000 less any impairment losses
C)$100,000 less any accumulated amortization (calculated over 5 years)and any impairment losses
D)$100,000 less any accumulated amortization (calculated over 7 years)and any impairment losses
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19
A subsidiary sold goods to its parent company.At its year-end,the parent company still had some of the goods in inventory.Included in the value of these inventories is $15,000 of unrealized profits.What journal entry should be made to eliminate these unrealized profits?
A)
B)
C)
D)
A)
B)
C)
D)
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20
Fair value increments on depreciable assets ________.
A)should be amortized in accordance with the subsidiary's depreciation policies
B)should be amortized in accordance with the parent company's depreciation policies
C)should always be recorded on the subsidiary's books
D)should be expensed immediately
A)should be amortized in accordance with the subsidiary's depreciation policies
B)should be amortized in accordance with the parent company's depreciation policies
C)should always be recorded on the subsidiary's books
D)should be expensed immediately
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21
On September 1,20X5,CanAir Limited decided to buy 100% of the shares outstanding of SkyAir Inc.for $900,000.Can Air will pay for this acquisition by using cash of $500,000 and issuing share capital for the remaining amount.The balances showing on the statement of financial position for the two companies at August 31,20X5 are as follows:
After a review of the financial assets and liabilities,CanAir determines that some of the assets of SkyAir have fair values different from their carrying values.These items are listed below:
• Land has a fair value of 225,000
• The building has a fair value of 1,090,000.The remaining useful life of the building is 20 years.
• Internet domain name has a fair value is $55,000.The domain name is estimated to have a useful life of 5 years.
• Customer lists has a fair value is $35,000.It is estimated that the customer lists will have a useful life of 7 years.
During the 20X9 fiscal year,the following events occurred:
1.On March 1,20X9,SkyAir sold land to CanAir for $390,000,which had a carrying value of $275,000.Can Air paid for this with $90,000 cash and a note payable for the difference.This note pays interest at 10% which is paid monthly.
2.CanAir provided management expertise to SkyAir and charged management fees of $890,000.
3.CanAir sold supplies (included in CanAir sales)to SkyAir for $200,000.CanAir charged SkyAir an amount that was 25% above costs.SkyAir still has supplies on hand of $70,000.
4.In 20X8,SkyAir had provided seat space on flights to Can Air for a value of $500,000.This amount was included in sales for SkyAir.Profit margin on these sales is 40%.At the end of August,20X8,CanAir still had an amount of $200,000 in these prepaid seats that had not yet been used.(CanAir includes this in inventory. )
Statements of Financial Position
As at August 31,20X9
Statements of Comprehensive Income
For the year ended August 31,20X9
Required:
Prepare the consolidated Statement of Comprehensive Income for the year ended August 31,20X9.
After a review of the financial assets and liabilities,CanAir determines that some of the assets of SkyAir have fair values different from their carrying values.These items are listed below:
• Land has a fair value of 225,000
• The building has a fair value of 1,090,000.The remaining useful life of the building is 20 years.
• Internet domain name has a fair value is $55,000.The domain name is estimated to have a useful life of 5 years.
• Customer lists has a fair value is $35,000.It is estimated that the customer lists will have a useful life of 7 years.
During the 20X9 fiscal year,the following events occurred:
1.On March 1,20X9,SkyAir sold land to CanAir for $390,000,which had a carrying value of $275,000.Can Air paid for this with $90,000 cash and a note payable for the difference.This note pays interest at 10% which is paid monthly.
2.CanAir provided management expertise to SkyAir and charged management fees of $890,000.
3.CanAir sold supplies (included in CanAir sales)to SkyAir for $200,000.CanAir charged SkyAir an amount that was 25% above costs.SkyAir still has supplies on hand of $70,000.
4.In 20X8,SkyAir had provided seat space on flights to Can Air for a value of $500,000.This amount was included in sales for SkyAir.Profit margin on these sales is 40%.At the end of August,20X8,CanAir still had an amount of $200,000 in these prepaid seats that had not yet been used.(CanAir includes this in inventory. )
Statements of Financial Position
As at August 31,20X9
Statements of Comprehensive Income
For the year ended August 31,20X9
Required:
Prepare the consolidated Statement of Comprehensive Income for the year ended August 31,20X9.
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22
On September 1,20X5,CanAir Limited decided to buy 100% of the shares outstanding of SkyAir Inc.for $900,000.Can Air will pay for this acquisition by using cash of $500,000 and issuing share capital for the remaining amount.The balances showing on the statement of financial position for the two companies at August 31,20X5 are as follows:
After a review of the financial assets and liabilities,CanAir determines that some of the assets of SkyAir have fair values different from their carrying values.These items are listed below:
• Land has a fair value of 225,000
• The building has a fair value of 1,090,000.The remaining useful life of the building is 20 years.
• Internet domain name has a fair value is $55,000.The domain name is estimated to have a useful life of 5 years.
• Customer lists has a fair value is $35,000.It is estimated that the customer lists will have a useful life of 7 years.
During the 20X9 fiscal year,the following events occurred:
1.On March 1,20X9,SkyAir sold land to CanAir for $390,000,which had a carrying value of $275,000.Can Air paid for this with $90,000 cash and a note payable for the difference.This note pays interest at 10% which is paid monthly.
2.CanAir provided management expertise to SkyAir and charged management fees of $890,000.
3.CanAir sold supplies (included in CanAir sales)to SkyAir for $200,000.CanAir charged SkyAir an amount that was 25% above costs.SkyAir still has supplies on hand of $70,000.
4.In 20X8,SkyAir had provided seat space on flights to Can Air for a value of $500,000.This amount was included in sales for SkyAir.Profit margin on these sales is 40%.At the end of August,20X8,CanAir still had an amount of $200,000 in these prepaid seats that had not yet been used.(CanAir includes this in inventory. )
Statements of Financial Position
As at August 31,20X9
Statements of Comprehensive Income
For the year ended August 31,20X9
Required:
Calculate the consolidated retained earnings as at August 31,20X9.
Prepare the consolidated Statement of Financial Position for the year ended August 31,20X9.
After a review of the financial assets and liabilities,CanAir determines that some of the assets of SkyAir have fair values different from their carrying values.These items are listed below:
• Land has a fair value of 225,000
• The building has a fair value of 1,090,000.The remaining useful life of the building is 20 years.
• Internet domain name has a fair value is $55,000.The domain name is estimated to have a useful life of 5 years.
• Customer lists has a fair value is $35,000.It is estimated that the customer lists will have a useful life of 7 years.
During the 20X9 fiscal year,the following events occurred:
1.On March 1,20X9,SkyAir sold land to CanAir for $390,000,which had a carrying value of $275,000.Can Air paid for this with $90,000 cash and a note payable for the difference.This note pays interest at 10% which is paid monthly.
2.CanAir provided management expertise to SkyAir and charged management fees of $890,000.
3.CanAir sold supplies (included in CanAir sales)to SkyAir for $200,000.CanAir charged SkyAir an amount that was 25% above costs.SkyAir still has supplies on hand of $70,000.
4.In 20X8,SkyAir had provided seat space on flights to Can Air for a value of $500,000.This amount was included in sales for SkyAir.Profit margin on these sales is 40%.At the end of August,20X8,CanAir still had an amount of $200,000 in these prepaid seats that had not yet been used.(CanAir includes this in inventory. )
Statements of Financial Position
As at August 31,20X9
Statements of Comprehensive Income
For the year ended August 31,20X9
Required:
Calculate the consolidated retained earnings as at August 31,20X9.
Prepare the consolidated Statement of Financial Position for the year ended August 31,20X9.
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23
On December 31,20X1,Dad Ltd.purchased 100% of the outstanding common shares of the Sad Ltd.for $9.5 million in cash.On that date,the shareholders' equity of Sad totaled $8 million and consisted of $1 million in no par common shares and $7 million in retained earnings.Both companies use the straight-line method to calculate depreciation.Goodwill,if any arises as a result of this business combination,is written down when there is impairment.Both Dad and Sad report under accounting standards for private enterprises.
For the year ending December 31,20X6,the statements of earnings for Dad and Sad were as follows:
As at December 31,20X6,the condensed statements of financial position for the two companies were as follows:
OTHER INFORMATION:
1.On December 31,20X1,Sad had a building with a fair value that was $300,000 greater than its carrying value.The building had an estimated remaining useful life of 20 years.
2.On December 31,20X1,Sad had inventory with a fair value that was $200,000 less than its carrying value.This inventory was sold in 20X3.
3.During 20X6,Dad sold merchandise to Sad for $100,000,a price that includes a gross profit of $40,000.During 20X6,40% of this merchandise was resold by Sad to third parties and the other 60% remains in its December 31,20X6 inventories.On December 31,20X5,the inventories of Sad contained merchandise purchased from Dad on which Dad had recognized a gross profit in the amount of $20,000.
4.During 20X6,Dad declared and paid dividends of $300,000 while Sad declared and paid dividends of $100,000.
5.Dad accounts for its investment in Sad using the cost method.
6.The retained earnings of Dad as at December 31,20x5 was $12,000,000.On that date,Sad had retained earnings of $9,800,000.Sad has not issued any common shares since its acquisition by Dad.
7.There were no specific events or circumstances between 20X2 and 20X6 to indicate any impairment of goodwill.
Required:
Calculate consolidated net income for the year ending December 31,20X6.
For the year ending December 31,20X6,the statements of earnings for Dad and Sad were as follows:
As at December 31,20X6,the condensed statements of financial position for the two companies were as follows:
OTHER INFORMATION:
1.On December 31,20X1,Sad had a building with a fair value that was $300,000 greater than its carrying value.The building had an estimated remaining useful life of 20 years.
2.On December 31,20X1,Sad had inventory with a fair value that was $200,000 less than its carrying value.This inventory was sold in 20X3.
3.During 20X6,Dad sold merchandise to Sad for $100,000,a price that includes a gross profit of $40,000.During 20X6,40% of this merchandise was resold by Sad to third parties and the other 60% remains in its December 31,20X6 inventories.On December 31,20X5,the inventories of Sad contained merchandise purchased from Dad on which Dad had recognized a gross profit in the amount of $20,000.
4.During 20X6,Dad declared and paid dividends of $300,000 while Sad declared and paid dividends of $100,000.
5.Dad accounts for its investment in Sad using the cost method.
6.The retained earnings of Dad as at December 31,20x5 was $12,000,000.On that date,Sad had retained earnings of $9,800,000.Sad has not issued any common shares since its acquisition by Dad.
7.There were no specific events or circumstances between 20X2 and 20X6 to indicate any impairment of goodwill.
Required:
Calculate consolidated net income for the year ending December 31,20X6.
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24
Which of the following consolidation adjustments will be required for a subsidiary that was acquired as a going concern,but will not be applicable for a parent-founded subsidiary?
A)Amortization of fair value increments on plant and equipment
B)Unrealized profits in ending inventory
C)Unrealized profits in beginning inventory
D)Future income tax on unrealized profits
A)Amortization of fair value increments on plant and equipment
B)Unrealized profits in ending inventory
C)Unrealized profits in beginning inventory
D)Future income tax on unrealized profits
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25
In 20X1,a parent company sold a tract of land to its subsidiary for $100,000,resulting in a $30,000 loss.The subsidiary's plans for the land did not materialize and it still owned the land at the end of 20X4.At the end of 20X4,what consolidating journal entry should be made with respect to the loss associated with the sale of land?
A)
B)
C)
D)
A)
B)
C)
D)
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26
On December 31,20X2,the Pipe Ltd.purchased 100% of the outstanding common shares of the Fitter Ltd.for $10.5 million in cash.On that date,the shareholders' equity of Fitter totaled $8 million and consisted of $1 million in no par common shares and $7 million in retained earnings.Both companies use the straight-line method to calculate depreciation and amortization.Goodwill,if any arises as a result of this business combination,is written down if there is a permanent impairment in its value.
For the year ending December 31,20X6,the income statements for Pipe and Fitter were as follows:
As at December 31,20X6,the condensed balance sheets for the two companies were as follows:
OTHER INFORMATION:
1.On December 31,20X2,Fitter had a building with a fair value that was $500,000 greater than its carrying value.The building had an estimated remaining useful life of 20 years.
2.On December 31,20X2,Fitter had trademark that was not reported on its balance sheet,but had a fair value that was $200,000.The trademark is amortized over 10 years.
3.During 20X6,Fitter sold merchandise to Pipe for $100,000,a price that includes a gross profit of $40,000.During 20X6,20% of this merchandise was resold by Pipe and the other 80% remains in its December 31,20X6 inventories.On December 31,20X5,the inventories of Pipe contained merchandise purchased from Fitter on which Fitter had recognized a gross profit in the amount of $50,000.
4.During 20X6,it was determined that the goodwill arising at the date of acquisition was impaired and that an impairment loss of $70,000 should be recorded.No impairment had been charged in earlier years.
5.During 20X6,Pipe declared and paid dividends of $300,000 while Fitter declared and paid dividends of $100,000.
6.Pipe accounts for its investment in Fitter using the cost method.
The retained earnings of Pipe as at December 31,20X5 equalled $12,000,000.On that date,Fitter had retained earnings of $9,800,000.Fitter has not issued any common stock since its acquisition by Pipe.
Required:
Prepare,in good form,a consolidated statement of comprehensive income for the year ended December 31,20X6.
For the year ending December 31,20X6,the income statements for Pipe and Fitter were as follows:
As at December 31,20X6,the condensed balance sheets for the two companies were as follows:
OTHER INFORMATION:
1.On December 31,20X2,Fitter had a building with a fair value that was $500,000 greater than its carrying value.The building had an estimated remaining useful life of 20 years.
2.On December 31,20X2,Fitter had trademark that was not reported on its balance sheet,but had a fair value that was $200,000.The trademark is amortized over 10 years.
3.During 20X6,Fitter sold merchandise to Pipe for $100,000,a price that includes a gross profit of $40,000.During 20X6,20% of this merchandise was resold by Pipe and the other 80% remains in its December 31,20X6 inventories.On December 31,20X5,the inventories of Pipe contained merchandise purchased from Fitter on which Fitter had recognized a gross profit in the amount of $50,000.
4.During 20X6,it was determined that the goodwill arising at the date of acquisition was impaired and that an impairment loss of $70,000 should be recorded.No impairment had been charged in earlier years.
5.During 20X6,Pipe declared and paid dividends of $300,000 while Fitter declared and paid dividends of $100,000.
6.Pipe accounts for its investment in Fitter using the cost method.
The retained earnings of Pipe as at December 31,20X5 equalled $12,000,000.On that date,Fitter had retained earnings of $9,800,000.Fitter has not issued any common stock since its acquisition by Pipe.
Required:
Prepare,in good form,a consolidated statement of comprehensive income for the year ended December 31,20X6.
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27
On December 31,20X5,Space Co.purchased 100% of the outstanding common shares of Shuttle Ltd.for $1,200,000 in shares and $200,000 in cash.The statements of financial position of Space and Shuttle immediately before the acquisition and issuance of the notes payable were as follows (in 000s):
The difference in the carrying value and the fair value of the capital assets for Shuttle relates to its office building.This building was originally purchased by Shuttle in January,20X1 and is being depreciated over 30 years.
During 20X6,the year following the acquisition,the following occurred:
1.Shuttle borrowed $350,000 from Space on June 1,20X6,and was charged interest at 10% per annum,which it paid on a monthly basis.There were no repayments of principal made during the remaining of the year.
2.Throughout the year,Shuttle purchased merchandise of $800,000 from Space.Space's gross margin is 30% of selling price.At December 31,20X6,Shuttle still owed Space $250,000 on this merchandise.75% of this merchandise was resold by Shuttle prior to December 31,20X6.
3.Shuttle paid dividends of $250,000 at the end of 20X6 and Space paid dividends of $500,000.
During 20X7,the following occurred:
1.Shuttle paid $150,000 on the loan payable to Space on May 30,20X7.
2.Throughout the year,Shuttle purchased merchandise of $1,000,000 from Space.Space's gross margin is 30% of selling price.At December 31,20X6,Shuttle still owed Space $150,000 on this merchandise.85% of this merchandise was resold by Shuttle prior to December 31,20X7.
3.Shuttle paid dividends of $250,000 at the end of 20X7 and Space paid dividends of $500,000.
Required:
Space has decided to record its investment in Shuttle using the equity method.Determine the balance in the investment in Shuttle account at December 31,20X7 using the equity method.
Prepare the statement of financial position and the statement of comprehensive income for the year ended December 31,20X7 for Space assuming it accounts for its investment in Shuttle using the equity method.
The difference in the carrying value and the fair value of the capital assets for Shuttle relates to its office building.This building was originally purchased by Shuttle in January,20X1 and is being depreciated over 30 years.
During 20X6,the year following the acquisition,the following occurred:
1.Shuttle borrowed $350,000 from Space on June 1,20X6,and was charged interest at 10% per annum,which it paid on a monthly basis.There were no repayments of principal made during the remaining of the year.
2.Throughout the year,Shuttle purchased merchandise of $800,000 from Space.Space's gross margin is 30% of selling price.At December 31,20X6,Shuttle still owed Space $250,000 on this merchandise.75% of this merchandise was resold by Shuttle prior to December 31,20X6.
3.Shuttle paid dividends of $250,000 at the end of 20X6 and Space paid dividends of $500,000.
During 20X7,the following occurred:
1.Shuttle paid $150,000 on the loan payable to Space on May 30,20X7.
2.Throughout the year,Shuttle purchased merchandise of $1,000,000 from Space.Space's gross margin is 30% of selling price.At December 31,20X6,Shuttle still owed Space $150,000 on this merchandise.85% of this merchandise was resold by Shuttle prior to December 31,20X7.
3.Shuttle paid dividends of $250,000 at the end of 20X7 and Space paid dividends of $500,000.
Required:
Space has decided to record its investment in Shuttle using the equity method.Determine the balance in the investment in Shuttle account at December 31,20X7 using the equity method.
Prepare the statement of financial position and the statement of comprehensive income for the year ended December 31,20X7 for Space assuming it accounts for its investment in Shuttle using the equity method.
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28
On the date that a company acquires a subsidiary,which consolidated financial statement(s)must be prepared?
A)Consolidated statement of financial position
B)Consolidated statement of financial position and consolidated statement of comprehensive income
C)Complete set of consolidated financial statements
D)No consolidated financial statements are required at the acquisition date
A)Consolidated statement of financial position
B)Consolidated statement of financial position and consolidated statement of comprehensive income
C)Complete set of consolidated financial statements
D)No consolidated financial statements are required at the acquisition date
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29
In consolidating parent-founded subsidiaries,what account is used to offset the parent company's "Investment in Subsidiary" account?
A)Retained earnings
B)Goodwill
C)Paid-in-capital accounts
D)No off-set is necessary
A)Retained earnings
B)Goodwill
C)Paid-in-capital accounts
D)No off-set is necessary
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30
In consolidating a wholly-owned parent-founded subsidiary,which of the following adjustments or eliminations is not required?
A)Eliminating any unrealized profits or losses
B)Eliminating intercompany payables and receivables
C)Adjusting for intercompany transactions
D)Adjusting for goodwill impairment
A)Eliminating any unrealized profits or losses
B)Eliminating intercompany payables and receivables
C)Adjusting for intercompany transactions
D)Adjusting for goodwill impairment
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31
On December 31,20X2,the Pipe Ltd.purchased 100% of the outstanding common shares of the Fitter Ltd.for $10.5 million in cash.On that date,the shareholders' equity of Fitter totaled $8 million and consisted of $1 million in no par common shares and $7 million in retained earnings.Both companies use the straight-line method to calculate depreciation and amortization.Goodwill,if any arises as a result of this business combination,is written down if there is a permanent impairment in its value.
For the year ending December 31,20X6,the income statements for Pipe and Fitter were as follows:
OTHER INFORMATION:
1.On December 31,20X2,Fitter had a building with a fair value that was $500,000 greater than its carrying value.The building had an estimated remaining useful life of 20 years.
2.On December 31,20X2,Fitter had trademark that was not reported on its balance sheet,but had a fair value that was $200,000.The trademark is amortized over 10 years.
3.During 20X6,Fitter sold merchandise to Pipe for $100,000,a price that includes a gross profit of $40,000.During 20X6,20% of this merchandise was resold by Pipe and the other 80% remains in its December 31,20X6 inventories.On December 31,20X5,the inventories of Pipe contained merchandise purchased from Fitter on which Fitter had recognized a gross profit in the amount of $50,000.
4.During 20X6,it was determined that the goodwill arising at the date of acquisition was impaired and that an impairment loss of $70,000 should be recorded.No impairment had been charged in earlier years.
5.During 20X6,Pipe declared and paid dividends of $300,000 while Fitter declared and paid dividends of $100,000.
6.Pipe accounts for its investment in Fitter using the cost method.
The retained earnings of Pipe as at December 31,20X5 equalled $12,000,000.On that date,Fitter had retained earnings of $9,800,000.Fitter has not issued any common stock since its acquisition by Pipe.
Required:
Calculate the consolidated retained earnings at December 31,20X5 and December 31,20X6.Prepare the consolidated statement of changes equity-partial statement showing the change in retained earnings for December 31,20X6 for Pipe.
For the year ending December 31,20X6,the income statements for Pipe and Fitter were as follows:
OTHER INFORMATION:
1.On December 31,20X2,Fitter had a building with a fair value that was $500,000 greater than its carrying value.The building had an estimated remaining useful life of 20 years.
2.On December 31,20X2,Fitter had trademark that was not reported on its balance sheet,but had a fair value that was $200,000.The trademark is amortized over 10 years.
3.During 20X6,Fitter sold merchandise to Pipe for $100,000,a price that includes a gross profit of $40,000.During 20X6,20% of this merchandise was resold by Pipe and the other 80% remains in its December 31,20X6 inventories.On December 31,20X5,the inventories of Pipe contained merchandise purchased from Fitter on which Fitter had recognized a gross profit in the amount of $50,000.
4.During 20X6,it was determined that the goodwill arising at the date of acquisition was impaired and that an impairment loss of $70,000 should be recorded.No impairment had been charged in earlier years.
5.During 20X6,Pipe declared and paid dividends of $300,000 while Fitter declared and paid dividends of $100,000.
6.Pipe accounts for its investment in Fitter using the cost method.
The retained earnings of Pipe as at December 31,20X5 equalled $12,000,000.On that date,Fitter had retained earnings of $9,800,000.Fitter has not issued any common stock since its acquisition by Pipe.
Required:
Calculate the consolidated retained earnings at December 31,20X5 and December 31,20X6.Prepare the consolidated statement of changes equity-partial statement showing the change in retained earnings for December 31,20X6 for Pipe.
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32
On September 1,20X5,CanAir Limited decided to buy 100% of the shares outstanding of SkyAir Inc.for $500,000.Can Air will pay for this acquisition by using cash of $500,000.The balances showing on the statement of financial position for the two companies at August 31,20X5 are as follows:
After a review of the financial assets and liabilities,CanAir determines that some of the assets of SkyAir have fair values different from their carrying values.These items are listed below:
• The building has a fair value of 1,090,000.The remaining useful life of the building is 20 years.
• Internet domain name has a fair value is $55,000.The domain name is estimated to have a useful life of 5 years.
• Customer lists has a fair value is $35,000.It is estimated that the customer lists will have a useful life of 7 years.
During the 20X9 fiscal year,the following events occurred:
1.On March 1,20X9,SkyAir sold land to CanAir for $390,000,which had a carrying value of $275,000.Can Air paid for this with $90,000 cash and a note payable for the difference.This note pays interest at 10% which is paid monthly.
2.CanAir provided management expertise to SkyAir and charged management fees of $890,000.
3.CanAir sold supplies (included in CanAir sales)to SkyAir for $200,000.CanAir charged SkyAir an amount that was 25% above costs.SkyAir still has supplies on hand of $70,000.
4.In 20X8,SkyAir had provided seat space on flights to Can Air for a value of $500,000.This amount was included in sales for SkyAir.Profit margin on these sales is 40%.At the end of August,20X8,CanAir still had an amount of $200,000 in these prepaid seats that had not yet been used.(CanAir includes this in inventory. )
Statements of Financial Position
As at August 31,20X9
Statements of Comprehensive Income
For the year ended August 31,20X9
Required:
CanAir would like to report this investment in SkyAir using the equity method.Determine the income from this equity investment for the year.
Determine the balance in the Investment in SkyAir account if the company used the equity method.
After a review of the financial assets and liabilities,CanAir determines that some of the assets of SkyAir have fair values different from their carrying values.These items are listed below:
• The building has a fair value of 1,090,000.The remaining useful life of the building is 20 years.
• Internet domain name has a fair value is $55,000.The domain name is estimated to have a useful life of 5 years.
• Customer lists has a fair value is $35,000.It is estimated that the customer lists will have a useful life of 7 years.
During the 20X9 fiscal year,the following events occurred:
1.On March 1,20X9,SkyAir sold land to CanAir for $390,000,which had a carrying value of $275,000.Can Air paid for this with $90,000 cash and a note payable for the difference.This note pays interest at 10% which is paid monthly.
2.CanAir provided management expertise to SkyAir and charged management fees of $890,000.
3.CanAir sold supplies (included in CanAir sales)to SkyAir for $200,000.CanAir charged SkyAir an amount that was 25% above costs.SkyAir still has supplies on hand of $70,000.
4.In 20X8,SkyAir had provided seat space on flights to Can Air for a value of $500,000.This amount was included in sales for SkyAir.Profit margin on these sales is 40%.At the end of August,20X8,CanAir still had an amount of $200,000 in these prepaid seats that had not yet been used.(CanAir includes this in inventory. )
Statements of Financial Position
As at August 31,20X9
Statements of Comprehensive Income
For the year ended August 31,20X9
Required:
CanAir would like to report this investment in SkyAir using the equity method.Determine the income from this equity investment for the year.
Determine the balance in the Investment in SkyAir account if the company used the equity method.
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33
On December 31,20X5,Space Co.purchased 100% of the outstanding common shares of Shuttle Ltd.for $1,200,000 in shares and $200,000 in cash.The statements of financial position of Space and Shuttle immediately before the acquisition and issuance of the notes payable were as follows (in 000s):
The difference in the carrying value and the fair value of the capital assets for Shuttle relates to its office building.This building was originally purchased by Shuttle in January,20X1 and is being depreciated over 30 years.
During 20X6,the year following the acquisition,the following occurred:
1.Shuttle borrowed $350,000 from Space on June 1,20X6,and was charged interest at 10% per annum,which it paid on a monthly basis.There were no repayments of principal made during the remaining of the year.
2.Throughout the year,Shuttle purchased merchandise of $800,000 from Space.Space's gross margin is 30% of selling price.At December 31,20X6,Shuttle still owed Space $250,000 on this merchandise.75% of this merchandise was resold by Shuttle prior to December 31,20X6.
3.Shuttle paid dividends of $250,000 at the end of 20X6 and Space paid dividends of $500,000.
During 20X7,the following occurred:
1.Shuttle paid $150,000 on the loan payable to Space on May 30,20X7.
2.Throughout the year,Shuttle purchased merchandise of $1,000,000 from Space.Space's gross margin is 30% of selling price.At December 31,20X6,Shuttle still owed Space $150,000 on this merchandise.85% of this merchandise was resold by Shuttle prior to December 31,20X7.
3.Shuttle paid dividends of $250,000 at the end of 20X7 and Space paid dividends of $500,000.
Required:
Calculate the consolidated retained earnings for Space as at December 31,20X7.
Prepare the consolidated statement of financial position for the year ended December 31,20X7 for Space.
The difference in the carrying value and the fair value of the capital assets for Shuttle relates to its office building.This building was originally purchased by Shuttle in January,20X1 and is being depreciated over 30 years.
During 20X6,the year following the acquisition,the following occurred:
1.Shuttle borrowed $350,000 from Space on June 1,20X6,and was charged interest at 10% per annum,which it paid on a monthly basis.There were no repayments of principal made during the remaining of the year.
2.Throughout the year,Shuttle purchased merchandise of $800,000 from Space.Space's gross margin is 30% of selling price.At December 31,20X6,Shuttle still owed Space $250,000 on this merchandise.75% of this merchandise was resold by Shuttle prior to December 31,20X6.
3.Shuttle paid dividends of $250,000 at the end of 20X6 and Space paid dividends of $500,000.
During 20X7,the following occurred:
1.Shuttle paid $150,000 on the loan payable to Space on May 30,20X7.
2.Throughout the year,Shuttle purchased merchandise of $1,000,000 from Space.Space's gross margin is 30% of selling price.At December 31,20X6,Shuttle still owed Space $150,000 on this merchandise.85% of this merchandise was resold by Shuttle prior to December 31,20X7.
3.Shuttle paid dividends of $250,000 at the end of 20X7 and Space paid dividends of $500,000.
Required:
Calculate the consolidated retained earnings for Space as at December 31,20X7.
Prepare the consolidated statement of financial position for the year ended December 31,20X7 for Space.
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34
On January 1,20X3,Dwayne Ltd.formed Carlos Co. ,a 100% owned subsidiary.During 20X6,Dwayne sold Carlos $100,000 in goods.The unrealized profit in Carlos' inventories was $20,000 at December 31,20X5 and $25,000 at December 31,20X6.Ignoring income taxes,what adjustment should be made to the consolidated financial statements for the year ended December 31,20X6 to reflect the unrealized profit in Carlos' ending inventory?
A)Inventory at December 31,20X6 will be increased by $25,000.
B)Cost of goods sold for 20X6 will be decreased by $25,000.
C)Retained earnings at the end of 20X6 will be decreased by $25,000.
D)Retained earnings at the end of 20X6 will be decreased by $5,000.
A)Inventory at December 31,20X6 will be increased by $25,000.
B)Cost of goods sold for 20X6 will be decreased by $25,000.
C)Retained earnings at the end of 20X6 will be decreased by $25,000.
D)Retained earnings at the end of 20X6 will be decreased by $5,000.
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35
On December 31,20X5,Space Co.purchased 100% of the outstanding common shares of Shuttle Ltd.for $1,200,000 in shares and $200,000 in cash.The statements of financial position of Space and Shuttle immediately before the acquisition and issuance of the notes payable were as follows (in 000s):
The difference in the carrying value and the fair value of the capital assets for Shuttle relates to its office building.This building was originally purchased by Shuttle in January,20X1 and is being depreciated over 30 years.
During 20X6,the year following the acquisition,the following occurred:
1.Shuttle borrowed $350,000 from Space on June 1,20X6,and was charged interest at 10% per annum,which it paid on a monthly basis.There were no repayments of principal made during the remaining of the year.
2.Throughout the year,Shuttle purchased merchandise of $800,000 from Space.Space's gross margin is 30% of selling price.At December 31,20X6,Shuttle still owed Space $250,000 on this merchandise.75% of this merchandise was resold by Shuttle prior to December 31,20X6.
3.Shuttle paid dividends of $250,000 at the end of 20X6 and Space paid dividends of $500,000.
During 20X7,the following occurred:
1.Shuttle paid $150,000 on the loan payable to Space on May 30,20X7.
2.Throughout the year,Shuttle purchased merchandise of $1,000,000 from Space.Space's gross margin is 30% of selling price.At December 31,20X6,Shuttle still owed Space $150,000 on this merchandise.85% of this merchandise was resold by Shuttle prior to December 31,20X7.
3.Shuttle paid dividends of $250,000 at the end of 20X7 and Space paid dividends of $500,000.
Required:
Prepare the consolidated statement of comprehensive income for the year ended December 31,20X7 for Space.
The difference in the carrying value and the fair value of the capital assets for Shuttle relates to its office building.This building was originally purchased by Shuttle in January,20X1 and is being depreciated over 30 years.
During 20X6,the year following the acquisition,the following occurred:
1.Shuttle borrowed $350,000 from Space on June 1,20X6,and was charged interest at 10% per annum,which it paid on a monthly basis.There were no repayments of principal made during the remaining of the year.
2.Throughout the year,Shuttle purchased merchandise of $800,000 from Space.Space's gross margin is 30% of selling price.At December 31,20X6,Shuttle still owed Space $250,000 on this merchandise.75% of this merchandise was resold by Shuttle prior to December 31,20X6.
3.Shuttle paid dividends of $250,000 at the end of 20X6 and Space paid dividends of $500,000.
During 20X7,the following occurred:
1.Shuttle paid $150,000 on the loan payable to Space on May 30,20X7.
2.Throughout the year,Shuttle purchased merchandise of $1,000,000 from Space.Space's gross margin is 30% of selling price.At December 31,20X6,Shuttle still owed Space $150,000 on this merchandise.85% of this merchandise was resold by Shuttle prior to December 31,20X7.
3.Shuttle paid dividends of $250,000 at the end of 20X7 and Space paid dividends of $500,000.
Required:
Prepare the consolidated statement of comprehensive income for the year ended December 31,20X7 for Space.
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36
On December 31,20X1,the Dad Ltd.purchased 100% of the outstanding common shares of the Sad Ltd.for $9.5 million in cash.On that date,the shareholders' equity of Sad totaled $8 million and consisted of $1 million in no par common shares and $7 million in retained earnings.Both companies use the straight-line method to calculate depreciation.Goodwill,if any arises as a result of this business combination,is written down if there is a permanent impairment in its value.
For the year ending December 31,20X6,the statements of comprehensive income for Dad and Sad were as follows:
As at December 31,20X6,the condensed statements of financial position for the two companies were as follows:
OTHER INFORMATION:
1.On December 31,20X1,Sad had a building with a fair value that was $300,000 greater than its carrying value.The building had an estimated remaining useful life of 20 years.
2.On December 31,20X1,Sad had inventory with a fair value that was $200,000 less than its carrying value.This inventory was sold in 20X3.
3.During 20X6,Dad sold merchandise to Sad for $100,000,a price that includes a gross profit of $40,000.During 20X6,40% of this merchandise was resold by Sad to third parties and the other 60% remains in its December 31,20X6 inventories.On December 31,20X5,the inventories of Sad contained merchandise purchased from Dad on which Dad had recognized a gross profit in the amount of $20,000.
4.During 20X6,Dad declared and paid dividends of $300,000 while Sad declared and paid dividends of $100,000.
5.Dad accounts for its investment in Sad using the cost method.
6.The retained earnings of Dad as at December 31,20x5 was $12,000,000.On that date,Sad had retained earnings of $9,800,000.Sad has not issued any common shares since its acquisition by Dad.
7.There were no specific events or circumstances between 20X2 and 20X6 to indicate any impairment of goodwill.
The retained earnings of Dad as at December 31,20X5 equalled $12,000,000.On that date,Sad had retained earnings of $9,800,000.Sad has not issued any common shares since its acquisition by Dad.
Required:
Calculate the consolidated retained earnings at December 31,20X6.
For the year ending December 31,20X6,the statements of comprehensive income for Dad and Sad were as follows:
As at December 31,20X6,the condensed statements of financial position for the two companies were as follows:
OTHER INFORMATION:
1.On December 31,20X1,Sad had a building with a fair value that was $300,000 greater than its carrying value.The building had an estimated remaining useful life of 20 years.
2.On December 31,20X1,Sad had inventory with a fair value that was $200,000 less than its carrying value.This inventory was sold in 20X3.
3.During 20X6,Dad sold merchandise to Sad for $100,000,a price that includes a gross profit of $40,000.During 20X6,40% of this merchandise was resold by Sad to third parties and the other 60% remains in its December 31,20X6 inventories.On December 31,20X5,the inventories of Sad contained merchandise purchased from Dad on which Dad had recognized a gross profit in the amount of $20,000.
4.During 20X6,Dad declared and paid dividends of $300,000 while Sad declared and paid dividends of $100,000.
5.Dad accounts for its investment in Sad using the cost method.
6.The retained earnings of Dad as at December 31,20x5 was $12,000,000.On that date,Sad had retained earnings of $9,800,000.Sad has not issued any common shares since its acquisition by Dad.
7.There were no specific events or circumstances between 20X2 and 20X6 to indicate any impairment of goodwill.
The retained earnings of Dad as at December 31,20X5 equalled $12,000,000.On that date,Sad had retained earnings of $9,800,000.Sad has not issued any common shares since its acquisition by Dad.
Required:
Calculate the consolidated retained earnings at December 31,20X6.
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37
Franklin Ltd. ,a subsidiary of Frayer Ltd. ,sold $500,000 of goods to its parent company in 20X1.At the end of 20X1,some of the goods were not sold and there was $90,000 of unrealized profit associated with these goods.The goods were sold in 20X2.At the end of 20X2,which of the following consolidating entries should be made with respect to the unrealized profits?
A)
B)
C)
D)
A)
B)
C)
D)
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