453 Assignment 4 2023W2-1

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Apr 3, 2024

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453 Assignment 4. Total marks 40 Question 1: ( 15 marks) On January 1, Year 5, Pa Imports Inc. acquired 90% of the common shares of Son Imports Ltd. in exchange for a new issue of its own shares valued at $3,600,000. At that date the shareholders’ equity section of Son Imports Ltd’s balance sheet was as follows: Preferred shares $ 600,000 Common shares 2,000,000 Retained earnings 1,600,000 Total shareholders’ equity $4,200,000 The preferred shares were cumulative with a dividend rate of 10% per year and were redeemable at 105. Dividends had not been paid for Year 4. Any acquisition differential was allocated to a building with a useful life of 10 years. During Year 5, Pa Imports Ltd. had a net income of $800,000 and paid dividends of $110,000 and Son Imports Ltd. had a net income of $450,000 and paid dividends of $150,000. The only transaction between the two companies was the sale of a parcel of land from Son Imports to Pa Imports. The land was sold for $450,000 and had cost Son Imports $520,000 when originally purchased. The tax rate is 25%. Required: a) Prepare the first 3 schedules (3 marks) b) What is the amount of the non-controlling interest shown on the consolidated balance sheet of Pa Imports Inc, as at December 31, Year 5? For NCIs, show the calculations for common and preferred shareholders separately . (6 marks) c) Calculate consolidated net income for year ending December 31, Year 5. You MUST show the net income attributable to the parent, NCI common and NCI preferred. Assume Pa does not own any of the preferred shares of Son. (6 marks) Hints :  Acquisitions differential at acquisition = $490,000  See Example in textbook and P8-6

453 A4 2023W2 2 Question 2: ( 25 marks) The following balance sheets have been prepared on December 31, Year 13 for Bambi Corp. and Deer Inc. Balance Sheets Bambi Deer Cash $30,000 $50,000 Accounts Receivable $180,000 $100,000 Inventory $70,000 $30,000 Investment in Deer $100,000 Property, Plant and Equipment* $600,000 $140,000 Accumulated Depreciation ($280,000) ($40,000) Total Assets $700,000 $280,000 * Includes land Current Liabilities $120,000 $30,000 Long-Term Debt $400,000 $20,000 Common shares $90,000 $40,000 Retained Earnings $90,000 $190,000 Liabilities and Equity $700,000 $280,000 Additional Information: Bambi uses the cost method to account for its 50% interest in Deer, which it acquired on January 1, Year 9 for $100,000. On that date, Deer ’s retained earnings were $20,000 and common shares $40,000. The acquisition differential all went to Equipment with a useful life of 7 years. Bambi sold Land to Deer during Year 12 and recorded a $15,000 gain on the sale. At December 31, Year 13, Bambi ’s inventory contained $50,000 of merchandise purchased from Deer of which $20,000 remained unpaid at year end. Deer charges a 20% profit margin. Both companies are subject to a tax rate of 20%. Required: a. Prepare a Consolidated Balance Sheet on December 31, Year 13 assuming that Bambi ’s investment in Deer is a control investment. b. Prepare a Consolidated Balance Sheet on December 31, Year 13 assuming that Bambi ’s Investment in Deer is a joint operations investment. c. Prepare a Balance Sheet on December 31, Year 13 assuming that Bambi ’s Investment in Deer is a joint venture investment. Hints: Total Assets a. $880,000; b. 740,000; c. $725,000. Expectations:  Illustrate your understanding of the different reporting methods between control, joint operations and joint ventures.  On the balance sheets, write out all account names and show all adjustments either in brackets or in the excel cell.  Show all supporting calculations to illustrate your logic and for full marks

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