The final exam is cumulative.
Bus 420 Sp 2021 Midterm Exam- Take Home 1 Simon Fraser University, Beedie School of Business BUS 420 – Sections D100 & E100; March 17, 2021 Midterm Examination-Version 1 Instructor: Dr. Jamal Nazari Maximum: 100 marks Time: 120 minutes Please read the following instructions very carefully. Your exam will not be graded if you do not follow the following instructions: 1. Your solution should be in Microsoft Excel. The Excel file should contain two worksheets. 2. Worksheet one should contain the following information: Your name, ID, Section enrolled (i.e. E100 or D100), Exam Version, and an electronic signature following the sentences below: I affirm that I have completed this assignment individually, did not access prohibited content and that I did not communicate, collude or share information with any person or organization regarding this exam. I understand that sharing any exam related information during or after the exam will be an academic misconduct. 3. Worksheet 2 should contain your solution to the question. 4. Read each question carefully before you attempt to answer it. 5. Show supporting calculations and assumptions to facilitate the awarding of marks. 6. Unless otherwise stated in the question, please prepare your answer according to IFRS. 7. The exam question sheet has 4_ pages including this cover. Please ensure that you have a complete examination. It is your responsibility to eliminate this exam from your computer immediately after the exam. Question Chapter Time (minutes) Marks Consolidation 3,4,5,6,7 120 100 Total 120 100 2 Question 1- 100 Marks (120 minutes) On July 1, 2023, Parent Ltd. (PL) purchased 80% of the outstanding shares of Subsidiary Ltd (SL) for $4,500,000 in cash. On this date, the shareholders' equity section of SL contained $1,600,000 in common shares and $2,950,000 in retained earnings. The fair values of all the assets and liabilities was equal to book value except for: Accounts receivable is overstated by 45,000 Inventory is understated by 95,000 Land is overstated by 250,000 Equipment is understated by 450,000 Bonds payable was understated by 5,000 Additional information: 1. Accounts receivables were collected by the end of 2023. 2. Inventory turns over every 45 days and all intercompany sale of inventories are cash sales. 3. On July 1, 2023, the equipment had a remaining useful life of 10 years, and bonds payable mature on June 30, 2028. PL selects to use straight-line method to amortize the difference between fair value of book value of bonds payable. 4. In 2025, PL sold inventory to SL for $650,000, earning a profit of $100,000. SL held 45% of the inventory at the end of 2025. This is the first year PL sold inventory to SL. 5. During 2024 SL sold inventory with a cost of $130,000 to Parent for $200,000. On December 31, 2024 Parent had half, or $100,000, of this inventory on hand. 6. PL's inventory on December 31, 2025 contained $60,000 of inventory purchased from SL. SL sold a total of $200,000 of inventory to Parent during 2025 at a gross profit rate of 35%. 7. On October 1, 2024, SL sold a building to PL for $475,000. At the time the net book value of the building was $365,000. The remaining useful life of the building was 20 years. Both companies use the straight-line method to calculate depreciation. PL still uses the building in its operations. 8. PL charges $1,000 to SL for consulting services and has been doing so throughout 2024 and 2025. SL has not yet made any payment for these charges. 9. On July 3, 2025 PL sold equipment to SL for $150,000. PL had originally purchased the equipment for $220,000 on June 28, 2023 and was being depreciated over 8 years. SL still owns this equipment as of December 31, 2025. 10. In 2024, it was determined that the goodwill was impaired by $50,000. Subsequently, goodwill was impaired by $25,000 in 2025. There have been no other impairments. 11. One half of the land that existed at acquisition was sold to an outside party in 2025. 12. Both companies pay tax at a rate of 20%. 3 Below are the SFP and SCI of PL and SL for 2025 fiscal year: Statement of Financial Position As At December 31, 2025 PL SL Cash $ 1,072,500 $ 487,500 Accounts receivable 1,290,200 420,000 Inventory 1,250,000 375,000 Equipment (net) 5,120,000 1,687,500 Building (net) 2,039,050 2,212,500 Investment in SL (at cost) 4,500,000 - Land 1,511,250 281,250 Total assets $ 16,783,000 $ 5,463,750 Current liabilities $ 1,137,500 $ 294,000 Bonds Payable 1,500,000 200,000 Other Long-term debts 2,024,100 252,250 Deferred income tax liability 115,900 54,000 Common shares 8,840,000 1,600,000 Retained earnings 3,165,500 3,063,500 Total liabilities and shareholders' equity $ 16,783,000 $ 5,463,750 Statement of Comprehensive Income For the Year Ended December 31, 2025 PL SL Sales $ 4,160,000 $ 1,275,000 Cost of sales 1,976,000 510,000 Gross profits $ 2,184,000 $ 765,000 Other income: Gain on the sale of land 56,250 Other revenues 520,000 93,750 Expenses: Depreciation expense 459,063 208,928 Administration and other expenses 1,155,000 243,750 Loss on the sale of equipment 15,000 Net income $ 1,074,937 $ 462,322 Income tax expense (current and deferred) 209,612 87,842 Net income after tax $ 865,325 $ 374,480 Opening retained earnings $ 2,446,425 $ 2,820,270 Dividends declared and paid 146,250 131,250 Closing retained earnings $ 3,165,500 $ 3,063,500 4 Required 1. Prepare a consolidated statement of comprehensive income for 2025. 2. Prepare consolidated statement of changes in shareholders' equity 3. Prepare a statement of financial position on December 31, 2025. 4. Determine the amount of Goodwill and NCI under Identifiable Net Assets approach on December 31, 2025. SHOW ALL OF YOUR CALCULATIONS