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)