Pre-Contribution Balance Sheets and Fair Values June 30, 20X9
(in thousands of $)
Swag Co. Perk Ltd.
Pre-
Contribution |
Fair
Value |
Pre-
Contribution |
Fair
Value |
Assets: |
Cash and cash equivalents |
1,645 |
1,645 |
840 |
840 |
Accounts receivable |
1,400 |
1,400 |
1,260 |
1,260 |
Land |
3,500 |
5,950 |
- |
- |
Building (net) |
9,450 |
7,700 |
5,880 |
7,700 |
Equipment (net) |
420 |
525 |
2,170 |
2,800 |
Total assets |
16,415 |
10,150 |
|
Liabilities and
shareholders’ equity: |
Accounts payable |
455 |
455 |
770 |
770 |
Long-term debt |
1,400 |
1,400 |
700 |
630 |
Total liabilities |
1,855 |
1,470 |
Common shares |
10,500 |
4,865 |
Retained earnings |
4,060 |
3,815 |
Total shareholders’ equity |
14,560 |
8,680 |
Total liabilities and
shareholders’ equity |
16,415 |
10,150 |
Swag Co. acquired Perk on June 30, 20X9. Both companies have June 30 year-ends. Before the combination, Swag and Perk had, respectively, 840,000 and 525,000 common shares, issued and outstanding.
Required:Prepare Swag’s consolidated balance sheet under each of the following independent situations:
a) Swag purchased the assets and assumed the liabilities of Perk by
paying $1,400,000 in cash and issuing a $12,600,000 note.
(6 marks)
b) Swag issued 280,000 common shares in exchange for all of
Perk’s outstanding shares. The fair value of the Swag shares
was $14,000,000.
(10 marks)c) In exchange for all of Perk’s outstanding shares, Swag paid
$700,000 cash and issued 189,000 common shares with a
market value of $9,450,000.
(12 marks)Problem 2 (50 marks)Balance Sheets
December 31, 20X3
Green Tower
Ltd. |
Blue Loft
Ltd. |
Assets: |
Current assets: |
Cash |
$ 156,000 |
$ 143,000 |
Accounts receivable |
195,000 |
175,500 |
Inventory |
312,000 |
253,500 |
Total current assets |
663,000 |
572,000 |
Land |
923,000 |
- |
Equipment |
897,000 |
1,183,000 |
Accumulated amortization |
(663,000) |
(416,000) |
Investment in Blue Loft |
1,409,200 |
- |
Goodwill* |
98,800 |
__-____ |
Total assets |
3,328,000 |
1,339,000 |
Liabilities and shareholders’ equity: |
Liabilities: |
Accounts payable |
184,600 |
78,000 |
Bonds payable |
780,000 |
260,000 |
Total liabilities |
964,600 |
338,000 |
Shareholders’ equity: |
Common shares |
650,000 |
325,000 |
Retained earnings |
1,713,400 |
676,000 |
Total shareholders’ equity |
2,363,400 |
1,001,000 |
Total liabilities and shareholders’ equity |
$3,328,000 |
$1,339,000 |
*from an acquisition prior to Blue Loft
Income Statements
Year Ended December 31, 20X3
Green Tower
Ltd. |
Blue Loft
Ltd. |
Sales revenue |
$1,560,000 |
$1,283,100 |
Cost of goods sold |
1,040,000 |
845,000 |
520,000 |
438,100 |
Gain on sale of land |
___-___ |
273,000 |
520,000 |
711,100 |
Operating expense |
305,500 |
464,100 |
Net income |
214,500 |
247,000 |
Statements of Retained Earnings
Year Ended December 31, 20X3
Green Tower
Ltd. |
Blue Loft
Ltd. |
Retained earnings, December 31, 20X2 |
$1,498,900 |
$ 429,000 |
Net income |
214,500 |
247,000 |
Retained earnings, December 31, 20X3 |
$1,713,400 |
$ 676,000 |
Blue Loft Ltd.
Carrying and Fair Values
January 1, 20X2
Carrying
Value |
Fair
Value |
Cash |
$ 104,000 |
$ 104,000 |
Accounts receivable |
128,700 |
128,700 |
Inventory |
231,400 |
253,500 |
Land |
650,000 |
811,000 |
Equipment |
390,000 |
151,000 |
Accumulated amortization |
(260,000) |
Accounts payable |
91,000 |
91,000 |
Bonds payable |
260,000 |
260,000 |
Common shares |
325,000 |
- |
Retained earnings |
568,100 |
- |
- On January 1, 20X2, Green Tower Ltd. acquired all the outstanding common shares of Blue Loft Ltd. for $1,409,200 cash.
- At December 31, 20X2, Green Tower’s inventory included goods that it had purchased from Blue Loft for $58,500. The intercompany profit on these goods was $15,600. All these goods were sold to third parties in 20X3.
- During 20X3, Green Tower purchased goods from Blue Loft for $195,000. Blue Loft earned a gross profit of $65,000 on this sale. At December 31, 20X3, Green Tower still had 40% of these goods in its inventory.
- During 20X3, Green Tower sold goods to Blue Loft for $507,000. Green Tower earned a gross profit of $117,000 on this sale. At December 31, 20X3, Blue Loft still had 20% of these goods in its inventory.
- In December, 20X3, Blue Loft sold a tract of land to Green Tower for $923,000. Blue Loft had purchased the land 8 years ago for $650,000.
- At the time of Green Tower’s acquisition, Blue Loft’s equipment had a remaining estimated useful life of 3 years. Blue Loft uses the straight-line method of amortization, with no residual value.
Required:Prepare the consolidated financial statements for 20X3 using the direct method.
Problem 3 (22 marks)Cox Ltd. acquired 70% of the common shares of March Co. at the beginning of 20X7. At the acquisition date, March’s shareholders’ equity consisted of the following:
Common shares $720,000
Retained earnings 360,000
The only acquisition differential pertained to goodwill.
Cox’s “Investment in March” general ledger account is as follows:
1/2/X7 Cost $ 781,200 |
12/31/X7 Dividends $33,600 |
12/31/X7 Investment Income 62,160 |
12/31/X8 Dividends 42,000 |
12/31/X8 Investment Income 76,440 |
12/31/X9 Dividends 50,400 |
12/31/X9 Investment income 94,080 |
|
Balance $ 887,880 |
March usually declares half of its profits as dividends.
Cox uses the entity theory method to consolidate its subsidiary.
Required:
- Calculate the total amount of dividends declared by March for 20X7.
(1 mark)
- Calculate March’s profit for 20X8.
(2 marks)
- Calculate the non-controlling interest amounts for Cox’s 20X9
- consolidated income statement, and
(3 marks)
- consolidated balance sheet.
(3 marks)
- Calculate the amount of goodwill that should appear on Cox’s 20X9 consolidated balance sheet.
(13 marks)