Contents Of Assignment Problems

Transcription

1 Contents Of Assignment Problems Problems For Chapter 2 1 Assignment Problem Two - 1 (Held-For-Trading and Available-For-Sale) 1 Assignment Problem Two - 2 (Fair Value And Equity Methods) Assignment Problem Two - 3 (Cost And Equity Methods) Assignment Problem Two - 4 (Classification Of Equity Securities)... 3 Problems For Chapter 3 4 Assignment Problem Three - 1 (Purchase Of Assets) Assignment Problem Three - 2 (Contingent Consideration, GAAP Conversion)... 4 Assignment Problem Three - 3 (Three Companies, Three Cases) Assignment Problem Three - 4 (Complex Business Combination) Problems For Chapter 4 9 Assignment Problem Four - 1 (Consolidated Balance Sheet at Acquisition - NCI On Identifiable Assets) Assignment Problem Four - 2 (Consolidated Balance Sheet at Acquisition - NCI At Fair Value) Problems For Chapter 5 11 Assignment Problem Five - 1 (Open Trial Balance - NCI On Assets - Equity Method Calculations) Assignment Problem Five - 2 (Open Trial Balance - NCI At Fair Value - No Balance Sheet) Assignment Problem Five - 3 (Consolidated Cash Flow Statement - No Profits) Assignment Problem Five - 4 (Step Acquisition - No Profits) Problems For Chapter 6 18 Assignment Problem Six - 1 (Open Trial Balance - Profits - NCI At Fair Value).. 18 Assignment Problem Six - 2 (Income Statement And Balance Sheet Items - NC On Assets) Problems For Chapter 6, continued Assignment Problem Six - 3 (Consolidated Cash Flow Statement - Profits) Assignment Problem Six - 4 (Completed Consolidated Statements With Questions) 23 Problems For Chapter 8 27 Assignment Problem Eight - 1 (Capital Contributions To Joint Ventures) Assignment Problem Eight - 2 (Proportionate Consolidation - No Intercompany Profits) Assignment Problem Eight - 3 (Proportionate Consolidation - Intercompany Profits) Problems For Chapter 9 31 Assignment Problem Nine - 1 (Translation Of Long-Term Debt) Assignment Problem Nine - 2 (Foreign Currency Investments) Assignment Problem Nine - 3 (Hedging Transactions - Various Cases). 32 Problems For Chapter Assignment Problem Ten - 1 (Income Statement Translation) Assignment Problem Ten - 2 (Translation O Financial Statements - Integrated Foreign Operation) Assignment Problem Ten - 3 (Translation Of Financial Statements).. 37 Assignment Problem Ten - 4 (Translation And Consolidation Of Foreign Subsidiary) Problems For Chapter Assignment Problem Eleven - 1 (Restricted Fund And Deferral Method Accounting) Assignment Problem Eleven - 2 (Fund Accounting) Assignment Problem Eleven - 3 (Accounting Recommendations)

2 Assignment Problems For Chapter 2 Page 1 Assignment Problems For Chapter 2 (The solutions for these problems are only available in the solutions manual that has been provided to your instructor.) Assignment Problem Two - 1 (Held-For-Trading and Available-For-Sale Investments) On December 31, 2008, Vonex Ltd. acquires 4,200 of the outstanding voting shares of Morex Inc. at a cost of $72.00 per share. Vonex Ltd. pays no transaction costs on its purchase or sale of Morex Inc. shares. Vonex has a December 31 year end. During the year ending December 31, 2009, Morex Inc. declares and pays dividends of $1.05 per share. On December 31, 2009, the Morex shares are trading at $78.00 per share. On May 1, 2010, Vonex sells the 4,200 Morex shares for proceeds of $56.00 per share. Morex did not declare any 2010 dividends prior this disposition. Required: For the period December 31, 2008 through May 1, 2010, provide the dated journal entries to account for the Morex shares, and calculate the effect of the investment in Morex shares on Venox s Net Income under the following assumptions: A. Venox classifies the investment in Morex shares as held for trading. B. Venox classifies the investment in Morex shares as available for sale. Assignment Problem Two - 2 (Fair Value And Equity Methods) On December 31, 2007, the Miser Company purchased 25 percent of the outstanding voting shares of the Mercy Company, a public company, for $4 million in cash. On the acquisition date, all of the net identifiable assets of the Mercy Company had fair values that were equal to their carrying values. The carrying value of Mercy Company s net assets was $16 million. Mercy s Net Income, dividends declared and paid, and the December 31 market value of its outstanding shares, for the year of acquisition and the three subsequent years are as follows: Net Income Dividends December 31 Market Year (Net Loss) Declared And Paid Price (100 Percent) 2007 $ 600,000 $ 600,000 $16,000, ( 2,000,000) 400,000 17,600, ,500, ,000 15,500, ,000,000 1,000,000 18,200,000 Both Companies close their books on December 31. The 2010 Income Before Extraordinary Items of the Mercy Company was $3,800,000. This was reduced by an $800,000 Extraordinary Loss, leaving the Net Income figure of $3,000,000 that is shown in the preceding table. There were no intercompany transactions, other than dividend payments, during any of the years under consideration. Required: Provide the Miser Company s dated journal entries to account for its investment in the Mercy Company for each of the four years and the December 31, 2010 balance in the Investment in Mercy account assuming that:

3 Assignment Problems For Chapter 2 Page 2 A. Miser Company s 25 percent holding does not give it significant influence in the operations of Mercy Company. Miser classifies the investment as held for trading. B. Miser Company s 25 percent holding does not give it significant influence in the operations of Mercy Company. Miser classifies the investment as available for sale. C. Miser Company s 25 percent holding gives it significant influence in the operations of Mercy Company. Assignment Problem Two - 3 (Cost And Equity Methods) On January 1, 2007, Tribble Company purchased 40 percent of the outstanding voting shares of the Marcus Company for $320,000 in cash. On that date, Marcus had Common Stock - No Par of $500,000, Retained Earnings of $300,000 and all of its identifiable assets and liabilities had fair values that were equal to their carrying values. This investment gives Tribble significant influence over the affairs of Marcus. Between January 1, 2007 and December 31, 2009, Marcus had Net Income and paid dividends as follows: Net Income (Loss) $300,000 ($400,000) $320,000 Dividends 100,000 50,000 70,000 There were no extraordinary items or prior period adjustments for Marcus in the three years 2007 through For the year ending December 31, 2010, the Income Statements of the Tribble and Marcus Companies, before recognition of any investment income, were as follows: Tribble and Marcus Companies Income Statements For the Year Ending December 31, 2010 Tribble Marcus Sales $2,300,000 $850,000 Other Revenues 200,000 Nil Total Revenues $2,500,000 $850,000 Cost Of Goods Sold $1,000,000 $500,000 Other Expenses 500,000 80,000 Total Expenses $1,500,000 $580,000 Income Before Discontinued Operations $1,000,000 $270,000 Loss From Discontinued Operations Nil ( 20,000) Net Income $1,000,000 $250,000 During 2010, Marcus initiated a change in accounting policy. The change was accounted for retroactively, through an adjustment of the Company s opening Retained Earnings balance in the amount of $700,000. Tribble declared $150,000 in dividends in Marcus declared and paid dividends of $120,000 in Assuming the use of the cost method to account for its Investment in Marcus since its acquisition, Tribble has a Retained Earnings balance of $4,600,000 on January 1, 2010.

4 Assignment Problems For Chapter 2 Page 3 Required: Prepare the dated journal entries for the Tribble Company related to its investment in the Marcus Company for the years 2007 through 2010, the Income Statement for the Tribble Company for the year ending December 31, 2010, and the Statement of Retained Earnings for the Tribble Company for the year ending December 31, 2010 assuming: A. that the Tribble Company is a qualifying enterprise and uses the Section 3051 differential reporting option to account for its Investment In Marcus by the cost method. B. that the Tribble Company is not a qualifying enterprise and, since it was acquired, the Investment In Marcus has been carried by the equity method. (This will require a recalculation of the January 1, 2010 Retained Earnings balance of Tribble.) Assignment Problem Two - 4 (Classification Of Equity Securities) Small World Limited owns a chain of retail stores which sell children s books and toys. The President of Small World, Ted Kidd, hopes that his Company will eventually achieve vertical integration with many of its suppliers. At the moment, Small World owns 52 percent of the outstanding voting shares of Blocks N Things, a toy wholesaler. Blocks N Things owns 22 percent of the outstanding common shares and 53 percent of the outstanding non-participating preferred shares of Craftco Limited, a manufacturer of wooden toys. Craftco s shares are traded in an active market. The Craftco preferred shares do not contain a mandatory redemption provision. No other Craftco shareholder, or group of related shareholders, holds preferred or common shares to the same extent as Blocks N Things. Craftco currently owns 13 percent of the outstanding common shares of Delta Inc., a major Canadian pulp and paper company. The market value of Delta s shares has decreased substantially since acquisition. Small World Limited also owns 40 percent of the outstanding common shares of Delta Inc. Required: Describe and justify the recommended accounting treatment for each of the investments, including those made by Small World Limited s investees.

5 Assignment Problems For Chapter 3 Page 4 Assignment Problems For Chapter 3 (The solutions for these problems are only available in the solutions manual that has been provided to your instructor.) Assignment Problem Three - 1 (Purchase Of Assets) On December 31, 2009, the assets and liabilities of the Davis Company and the Jones Company have fair values and book values as follows: Davis and Jones Companies Balance Sheets As At December 31, 2009 Davis Jones Book Value Fair Value Book Value Fair Value Cash $ 450,000 $ 450,000 $ 375,000 $ 375,000 Accounts Receivable 560, , , ,000 Inventories 1,200,000 1,150, , ,000 Net Plant And Equipment 2,800,000 3,200,000 1,575,000 1,250,000 Total Assets $5,010,000 $5,345,000 $3,245,000 $2,980,000 Current Liabilities $ 325,000 $ 325,000 $ 295,000 $ 295,000 Bonds Payable 1,200,000 1,400, , ,000 Future Income Tax Liability 780,000 N/A 430,000 N/A No Par Common Stock 2,100,000 N/A 1,200,000 N/A Retained Earnings 605,000 N/A 450,000 N/A Total Equities $5,010,000 $3,245,000 The No Par Common Stock of the Davis Company, prior to the business combination, consists of 42,000 shares issued at an average price of $50 per share. The No Par Common Stock of the Jones Company consists of 60,000 shares issued at an average price of $20 per share. On December 31, 2009, the Davis Company issues 30,000 shares of its No Par Common Stock in return for all of the assets and liabilities of the Jones Company. On this date the Davis Company shares are trading at $65 per share while the Jones Company shares are trading at $32.50 per share. Required: Prepare the December 31, 2009 Balance Sheet that would be required for the combined company resulting from the business combination transaction. Assignment Problem Three - 2 (Contingent Consideration, GAAP Conversion) On December 31, 2009, Public Ltd. acquires all of the outstanding shares of Private Inc. The consideration consists of 100,000 Public Ltd. shares plus $1,300,000 in cash. At the time of issue, the Public Ltd. shares are trading at $ As part of the acquisition contract, Public Ltd. agrees that, if by the end of 2010 their shares are not trading at a price of $12.00 or more, it will pay an additional $150,000 in cash to the former shareholders of Private Inc. Public management estimates the fair value of this contingent payment to be $60,000 on December 31, 2009.

6 Assignment Problems For Chapter 3 Page 5 On December 31, 2009, the pre-business combination Balance Sheets of the two Companies are as follows: Public Ltd. and Private Inc. Balance Sheets As At December 31, 2009 Public Ltd. Private Inc. Cash $1,892,000 $ 342,000 Accounts Receivable 767,000 Nil Inventories 1,606, ,000 Land 462, ,000 Plant And Equipment - Cost 3,272,000 2,727,000 Accumulated Amortization ( 1,203,000) ( 776,000) Patent N/A 103,000 Goodwill 372,000 N/A Total Assets $7,168,000 $3,144,000 Current Liabilities $ 458,000 Nil Bonds Payable - Par 1,507,000 $ 800,000 Bond Payable - Premium 48,000 23,000 Public Common Stock - No Par (250,000 Shares) 2,500,000 N/A Private Common Stock - No Par N/A 1,200,000 Retained Earnings 2,655,000 1,121,000 Total Equities $7,168,000 $3,144,000 Other Information: 1. The stock of Public Ltd. is traded on a national stock exchange. As a consequence, they are required to prepare audited financial statements. Private Inc. is a Canadian controlled private corporation and has never needed audited financial statements. 2. As there has been no need for Private Inc. to comply with generally accepted accounting principles (GAAP), the Company records revenues and current expenses on a cash basis. After some investigation, it is determined that on January 1, 2009, Private Inc. had unrecorded Accounts Receivable of $220,000 and unrecorded Accounts Payable of $273,000. The corresponding balances on December 31, 2009 are $326,000 for Accounts Receivable and $473,000 for Accounts Payable. 3. Public Ltd. records Inventories at lower of cost and market. Private Inc. s Inventories are carried at cost. On December 31, 2009, the net realizable value of Private Inc. s Inventories was $607, On December 31, 2009, the appraised value of Private Inc. s Land was $93, The December 31, 2009 fair value of Private Inc. s Plant And Equipment is $2,103, The Patent on Private Inc. s books was purchased on January 1, 2004 and is being amortized over what was expected to be its useful life, ten years. However, the process that is covered by the Patent has been replaced by a less costly procedure, and is no longer used by the Company. Private Inc. does not own any other intangible assets. 7. Private Inc. s Bonds Payable were privately placed with a large insurance company. At current market rates of interest they have a present value of $790,000. However, they can only be retired by paying the insurance company a premium of 10 percent over their par value.

7 Assignment Problems For Chapter 3 Page 6 Required: A. Provide the journal entries that would be required: on December 31, 2009 to record the acquisition, on December 31, 2010 if the contingency payment is required, on December 31, 2010 if the contingency payment is not required. B. Prepare the December 31, 2009 Balance Sheet for the combined Companies Public Ltd. and its subsidiary, Private Inc. Assignment Problem Three - 3 (Three Companies, Three Cases) As at December 31, 2009, the condensed Balance Sheets of Monson Ltd., Barrister Ltd., and Flex Ltd. are as follows: Monson Ltd. Condensed Balance Sheet At December 31, 2009 Book Values Fair Values Current Assets $ 24,200 $ 25,000 Non-Current Assets 186, ,200 Total Assets $210,700 Liabilities $ 78,400 $ 75,600 No Par Common Stock (11,000 Shares) 93,500 Retained Earnings 38,800 Total Equities $210,700 Barrister Ltd. Condensed Balance Sheet At December 31, 2009 Book Values Fair Values Current Assets $ 35,800 $ 34,500 Non-Current Assets 220, ,400 Total Assets $256,400 Liabilities $ 56,300 $ 58,200 No Par Common Stock (5,500 Shares) 66,000 Retained Earnings 134,100 Total Equities $256,400

8 Assignment Problems For Chapter 3 Page 7 Flex Ltd. Condensed Balance Sheet At December 31, 2009 Book Values Fair Values Current Assets $ 46,300 $ 47,300 Non-Current Assets 152, ,600 Total Assets $198,500 Liabilities $ 62,400 $ 59,800 No Par Common Stock (18,000 Shares) 45,000 Retained Earnings 91,100 Total Equities $198,500 The three Companies intend to combine their activities and are considering a variety of approaches. Three possible approaches are as follows: Approach One Flex Ltd. would borrow $303,000. Using the loan proceeds, Flex Ltd. would pay cash of $160,000 to Monson Ltd. and cash of $143,000 to Barrister Ltd., in return for all of the assets and liabilities of the two Companies. There will be a wind up of the operations of both Monson Ltd. and Barrister Ltd. Approach Two Barrister Ltd. would borrow $326,000. Using the loan proceeds, Barrister Ltd. would pay cash of $170,000 to the shareholders of Monson Ltd. and cash of $156,000 to the shareholders of Flex Ltd., in return for all of the outstanding shares of these two Companies. Approach Three Monson Ltd. will issue 11,000 new common shares to Barrister Ltd. and 11,000 new common shares to Flex Ltd. In return, Monson Ltd. will receive all of the assets and liabilities of the two Companies. There would be a wind up of the activities of the two Companies. At this time, the common stock of Monson Ltd. is trading at $13.50 per share. Neither Barrister Ltd. nor Flex Ltd. are given representation on the Monson Ltd. board of directors. Required: Prepare the December 31, 2009 Balance Sheet for the combined company that would result from each of the three approaches described. Your solutions should be prepared based on the CICA Handbook Recommendations, without regard to any corporate legislation requirements that may be applicable. The joining together of these three companies should be viewed as a single business combination transaction. Assignment Problem Three - 4 (Complex Business Combination) The Haggard Corporation Limited (Haggard, hereafter), a federally chartered Canadian company, has concluded negotiations with the Jones Corporation Limited (Jones, hereafter) for the purchase of all of the latter corporation s assets at fair market value, effective January 1, Jones Corporation Limited operates a restaurant and a catering business. An examination at that date by independent experts disclosed that the fair market value of Jones inventories was $150,000, and of its machinery and equipment was $160,000. The original cost of the machinery and equipment was $140,000. It was determined that accounts receivable were fairly valued at book value. Jones held 1,000 of the common shares of Haggard and the fair market value of these shares was $62,000. This value corresponds with the value of Haggard s common shares in the open market and would be expected to hold for transactions involving a substantially larger number of shares. The purchase agreement provides that the total purchase price of all assets will be $490,000, payable as follows:

9 Assignment Problems For Chapter 3 Page 8 1. Assumption of the current liabilities of Jones at their book value; 2. Settlement of the Jones debenture debt at its current value in a form acceptable to Jones debenture holders; 3. Haggard shares held by Jones and acquired by Haggard as a result of the transaction would be subsequently returned to Jones at fair market value as part of the consideration; 4. Haggard holds 1,000 shares of Jones and these would be returned to Jones. The value to be ascribed to these shares is 1/10 of the difference between the total purchase price of all assets stated above ($490,000), less the current value of its liabilities. 5. The balance of the purchase consideration was to be entirely in Haggard common shares, except for a possible fractional share element which would be paid in cash. The Jones debenture holders, who are neither shareholders of Haggard nor Jones, have agreed to accept Haggard bonds in an amount equal to $88,626, the current market value of the bonds. The Haggard bonds carry a 12 percent coupon and trade at par. The face value of each bond is $1,000. Any amounts assigned to goodwill in this business combination will be deductible for tax purposes as cumulative eligible capital up to a maximum of 75 percent. Jones, upon conclusion of the agreement, would be wound up. The Balance Sheets of both corporations, as at the date of implementation of the purchase agreement (January 1, 2009), are as follows: Balance Sheets As At January 1, 2009 Haggard Jones Cash $ 100,000 Nil Accounts Receivable 288,000 $112,000 Inventories At Cost 250, ,000 Investment In Jones (1,000 Shares) 20,000 N/A Investment In Haggard (1,000 Shares) N/A 40,000 Machinery And Equipment - Net 412, ,000 Total Assets $1,070,000 $376,000 Current Liabilities $ 60,000 $ 35,000 7% Debentures - Due December 31, 2011 N/A 100,000 12% Bonds - Due December 31, ,000 N/A Premium On Bonds 20,000 N/A Common Stock (See Note) 200, ,000 Retained Earnings 290, ,000 Total Equities $1,070,000 $376,000 Note Each company has issued 10,000 shares. Both corporations have fiscal years that are identical to the calendar year. Required: A. Prepare Haggard s pro-forma Balance Sheet as at January 1, B. Assume that Jones had a non-capital loss carry forward for tax purposes of $500,000. Should the form of the purchase of Jones differ? Explain your conclusion. (CICA Adapted)

10 Assignment Problems For Chapter 4 Page 9 Assignment Problems For Chapter 4 (The solutions for these problems are only available in the solutions manual that has been provided to your instructor.) Assignment Problem Four - 1 (Consolidated Balance Sheet at Acquisition - NCI On Identifiable Assets) On December 31, 2009, the closed Trial Balances of the Pass Company and the Sass Company, before the business combination transaction, were as follows: Pass Sass Cash And Receivables $ 100,000 $ 110,000 Inventories 3,300, ,000 Current Assets $3,400,000 $ 300,000 Plant And Equipment (At Cost) 9,000,000 3,000,000 Accumulated Amortization ( 3,400,000) ( 1,200,000) Total Assets $9,000,000 $2,100,000 Current Liabilities $ 300,000 $ 200,000 Long-Term Liabilities 3,500, ,000 Mortgage Payable N/A 300,000 Total Liabilities $3,800,000 $1,300,000 Shareholders Equity Common Stock - No Par 1,000,000 N/A Common Stock - Par $50 N/A 900,000 Contributed Surplus N/A 300,000 Retained Earnings (Deficit) 4,200,000 ( 400,000) Total Equities $9,000,000 $2,100,000 The Pass Company has 25,000 shares outstanding on December 31, 2009 which are trading at $50 per share on this date. On December 31, 2009, the identifiable assets and liabilities of both companies had fair values that were equal to their carrying values except for the following fair values: Fair Values Pass Sass Plant And Equipment (Net) $7,000,000 $1,500,000 Long-Term Liabilities 3,000, ,000 It was also determined that on December 31, 2009, Sass Company had a registered trademark with a fair value of $120,000 that was not recorded on its books. Prior to the business combination, in 2009, Pass sold merchandise to Sass for $200,000 and Sass sold Pass merchandise for $100,000. On December 31, 2009, one-half of these intercompany purchases had been resold to parties outside the consolidated entity. On December 31, 2009, Sass owed Pass $50,000 on its intercompany merchandise purchases. On December 31, 2009, Pass issued 15,000 of its shares to acquire 75 percent of the outstanding shares of Sass. Management has decided to record the Non-Controlling Interest at an amount equal to its share of the net identifiable assets of Sass. Required: Prepare a classified consolidated Balance Sheet as at December 31, 2009 for the Pass Company and its subsidiary, the Sass Company. Your answer should comply with all of the recommendations of Sections 1582, 1601, and 1602 of the CICA Handbook.

11 Assignment Problems For Chapter 4 Page 10 Assignment Problem Four - 2 (Consolidated Balance Sheet at Acquisition - NCI At Fair Value) The Peretti Company and the Blakelock Company are two successful Canadian companies operating on Prince Edward Island. On December 31, 2009, the condensed Balance Sheets and the identifiable fair values of the Peretti Company and the Blakelock Company are as follows: Peretti Company December 31, 2009 Balance Sheet Fair Values Current Assets $2,220,000 $2,340,000 Non-Current Assets (Net) 3,600,000 3,900,000 Total Assets $5,820,000 Current Liabilities $ 420,000 $ 420,000 Long-Term Liabilities 1,500,000 1,440,000 Common Stock - No Par 1,800,000 Retained Earnings 2,100,000 Total Equities $5,820,000 Blakelock Company December 31, 2009 Balance Sheet Fair Values Current Assets $1,800,000 $1,980,000 Non-Current Assets (Net) 3,540,000 2,400,000 Total Assets $5,340,000 Current Liabilities $ 720,000 $ 720,000 Long-Term Liabilities 2,400,000 2,520,000 Common Stock - No Par 1,200,000 Retained Earnings 1,020,000 Total Equities $5,340,000 The Peretti Company has 300,000 common shares outstanding with a market price of $12 per share. The Blakelock Company has 60,000 common shares outstanding with a market price of $23 per share. On December 31, 2009, Peretti owes Blakelock $48,000 for the use of Blakelock s accounting staff during On December 31, 2009, subsequent to the preparation of the preceding single entity Balance Sheets, the Peretti Company purchases 60 percent of the outstanding shares of the Blakelock Company for $900,000 in cash. Peretti management has decided to record the Non-Controlling interest at its fair value. This value is determinated on the basis of the price paid for the controlling interest. Required: Prepare a classified consolidated Balance Sheet for Peretti and its subsidiary Blakelock, as at December 31, 2009.

12 Assignment Problems For Chapter 5 Page 11 Assignment Problems For Chapter 5 (The solutions for these problems are only available in the solutions manual that has been provided to your instructor.) Assignment Problem Five - 1 (Open Trial Balance - No Profits - NCI On Assets - Equity Method Calculations) On January 1, 2009, the Perry Company purchased 72 percent of the outstanding voting shares of the Styan Company for $3,975,000 in cash. On that date, the Styan Company had No Par Common Stock of $1,680,000 and Retained Earnings of $3,570,000. All of the Styan Company s identifiable assets and liabilities had carrying values that were equal to their fair values except for: 1. Inventories which had fair values of $1,806,000 and carrying values of $2,037, Buildings which had fair values that were $175,000 more than their carrying values and a remaining useful life of 20 years. 3. Land which had a fair value of $1,596,000 and a carrying value of $1,400, A Patent with a nil carrying value and a fair value of $154,000. The patent has a remaining life of two years. 5. Long-Term Liabilities which had fair values that were $210,000 more than their carrying values and mature on December 31, Perry records the at acquisition non-controlling interest in Styan based on this interest s share of the fair value of the identifiable net assets of Styan. The Balance Sheets of the Perry Company and the Styan Company as at December 31, 2011 were as follows: Perry and Styan Companies Balance Sheets As At December 31, 2011 Perry Styan Cash $ 175,000 $ 17,500 Current Receivables 910, ,000 Inventories 1,709,750 1,050,000 Current Assets $ 2,794,750 $1,207,500 Equipment (Net) 3,584,000 2,248,750 Buildings (Net) 3,727,500 2,187,500 Investment in Styan (Cost) 3,975,000 N/A Land 1,406,250 1,400,000 Total Assets $15,487,500 $7,043,750 Dividends Payable Nil $ 70,000 Current Liabilities $ 840, ,000 Long-Term Liabilities 3,587,500 3,064,000 Total Liabilities $4,427,500 $3,484,000 Shareholders Equity: Preferred Stock 280,000 Nil No Par Common Stock 9,100,000 1,680,000 Retained Earnings 1,680,000 1,879,750 Total Equities $15,487,500 $7,043,750

13 Assignment Problems For Chapter 5 Page 12 The Income Statements of the Perry and Styan Companies for the year ending December 31, 2011 were as follows: Perry and Styan Companies Income Statements For The Year Ending December 31, 2011 Perry Styan Sales $3,800,000 $1,120,000 Other Revenues 62, ,000 Total Revenues $3,862,400 $1,320,000 Cost of Goods Sold $1,412,000 $ 623,000 Amortization Expense 525, ,000 Other Expenses 1,567, ,000 Total Expenses $3,504,000 $1,033,000 Income Before Results Of Discontinued Operations $ 358,400 $ 287,000 Results Of Discontinued Operations Nil ( 2,052,500) Net Income (Loss) $ 358,400 ($1,765,500) Other Information: 1. In both of the years since Perry acquired control over Styan, the goodwill arising on this business combination transaction has been tested for impairment. No impairment was found in either 2009 or However, due to the large loss for 2011, the goodwill related to the purchase of Styan shares has a nil fair value on December 31, Both Companies use the straight line method to calculate amortization charges. 3. In its single entity records, Perry uses the cost method to carry its Investment In Styan. 4. The Sales account in both Companies Income Statements include only sales of merchandise. All other income is accounted for in Other Revenues. 5. The Styan Company has sold no Land since January 1, During 2011, dividends of $175,000 were declared and paid by Perry and dividends of $70,000 were declared by Styan. 7. During 2011, Perry sold to Styan merchandise worth $217,000 which was resold by Styan for a gross profit of $162,000 outside of the consolidated entity in Styan owes Perry $84,000 on December 31, 2011 due to these purchases. 8. During October, 2011, Styan charged the Perry Company $70,000 for the services of a team of computer programmers. The wages paid to the programmers for this work totalled $58,500. Perry still has a balance of $3,500 outstanding for this charge on December 31, Required: A. Prepare the consolidated Income Statement for the year ending December 31, 2011 of the Perry Company and its subsidiary, the Styan Company. B. Prepare the consolidated Statement Of Retained Earnings for the year ending December 31, 2011 of the Perry Company and its subsidiary, the Styan Company.

14 Assignment Problems For Chapter 5 Page 13 C. Prepare the consolidated Balance Sheet as at December 31, 2011 of the Perry Company and its subsidiary, the Styan Company. D. Assume that the Perry Company, despite its majority ownership, does not have control over Styan and carries its Investment In Styan using the equity method. Calculate and disclose the amount(s) of investment income that would be shown in the Perry Company s Income Statement under this assumption. (An Income Statement is not required.) Assignment Problem Five - 2 (Open Trial Balance - No Profits - NCI At Fair Value - No Balance Sheet) On April 1, 2009, the Perle Company acquired 70 percent of the outstanding voting shares of the Thane Company for $1,785,000 in cash. On this date the book value of the Thane Company s Shareholders Equity was $2,600,000 and all of the Thane Company s identifiable assets and liabilities had fair values that were equal to their carrying values except for the following: Carrying Value Fair Value Marketable Securities $ 28,000 $ 35,000 Fleet of Trucks 324, ,000 Division F - Building and Equipment (Net) 631, ,000 Land 96, ,000 Long-Term Liabilities - Par $2,000,000 1,983,000 2,010,000 The management of Perle intends to measure the non-controlling interest in Thane at its fair value, determined on the basis of the price paid for the controlling Interest. The Marketable Securities were sold on March 17, 2010 for $33,000. The fleet of trucks have an estimated remaining useful life of four years on April 1, 2009 and no anticipated salvage value. The Division F Building and Equipment was purchased on April 1, 1997 and had an estimated useful life of 20 years on that date. When purchased they had an anticipated salvage value of $80,000 and there is no change in the estimates of salvage value or total useful life on April 1, The parcel of Land is being held in anticipation of expansion in The Long-Term Liabilities are scheduled to mature on April 1, Both Companies use the straight line method for amortization calculations. The Perle Company carries its investment in Thane Company using the cost method. This is applied on a pro rata basis to assets that are owned for less than a full year. For the year ending December 31, 2011, the Income Statements for the Perle Company and the Thane Company are as follows: Perle and Thane Companies Income Statements For The Year Ending December 31, 2011 Perle Thane Sales Revenue $4,887,000 $1,450,000 Investment Income 29,500 12,000 Total Revenues $4,916,500 $1,462,000 Cost Of Goods Sold $2,117,000 $ 829,000 Amortization Expense 935, ,000 Other Expenses and Losses 1,284, ,000 Total Expenses $4,336,000 $1,210,000 Net Income $ 580,500 $ 252,000

15 Assignment Problems For Chapter 5 Page 14 Other Information: 1. On January 1, 2011, the Retained Earnings balance of the Perle Company was $8,463,000. During 2011, the Perle Company paid dividends totalling $115, Between April 1, 2009 and December 31, 2010, Thane earned Net Income of $192,000 and declared dividends totalling $46, During the period April 1, 2009 until December 31, 2011, neither the Perle Company nor the Thane Company issue or retire shares of common stock. 4. In each of the years since Perle acquired control over Thane, the goodwill arising on this business combination transaction has been tested for impairment. No impairment was found in any of the years since acquisition. 5. The Perle Company s investment income for 2011 consists of $5,000 in interest revenue and its income from the Thane Company. 6. During 2011, the Thane Company used the services of several of the Perle Company s accountants and agreed to pay a fee of $5,600 for these services. On December 31, 2011, this fee remains unpaid. This amount is included in the Sales Revenues of the Perle Company and in the Other Expenses of the Thane Company. The salaries paid to the accountants by the Perle Company for the work done on the Thane Company amount to $4,200 and are included in the Other Expenses of the Perle Company. 7. On January 1, 2011, the Perle Company rented a building from the Thane Company for a monthly rent of $2,000. On December 31, 2011, the Perle Company owed three months rent. The rent is included in the Sales Revenues of the Thane Company and in the Other Expenses of the Perle Company. Required: A. For the year ending December 31, 2011, prepare the consolidated Income Statement and the consolidated Statement Of Retained Earnings of the Perle Company and its subsidiary, the Thane Company. Include a verification of the December 31, 2011 consolidated Retained Earnings balance. B. Calculate the Non-Controlling Interest that would be shown in the December 31, 2011 consolidated Balance Sheet of the Perle Company and its subsidiary, the Thane Company. C. Assume that on December 31, 2011, the Thane Company sold the Division F assets to someone outside the consolidated entity for $380,000, creating a loss of $61,594 on Thane Company s books. Assume that this loss is included in Thane s Other Expenses And Losses. The sale consisted of the Building and Equipment which had the fair value change on April 1, Provide the journal entries to record the effect of the loss on the consolidated Income Statement of the Perle Company and its subsidiary, the Thane Company for the year ending December 31, 2011.

16 Assignment Problems For Chapter 5 Page 15 Assignment Problem Five - 3 (Consolidated Cash Flow Statement - No Profits) The ledger account balances for the Pump Company and the Slump Company on December 31, 2009 and 2010 are as follows: December 31, 2010 December 31, 2009 Pump Slump Pump Slump Cash $ 42,200 $ 69,400 $ 113,400 $ 19,600 Accounts Receivable 99, , ,400 63,000 Other Current Receivables 82,600 44,800 64,600 49,000 Inventories 93, ,800 99,600 96,800 Investment in Slump (Cost) 356,800 N/A 356,800 N/A Other Investments (Cost) 21,600 66, ,600 66,800 Land 36,400 30,000 57,400 30,000 Buildings 271, , , ,000 Equipment 122,000 90,000 96,000 90,000 Dividends Declared 48,000 28,000 Nil Nil Total Debits $1,173,800 $760,200 $1,295,200 $545,200 Bad Debt Allowance $ 9,000 $ 7,800 $ 8,200 $ 7,400 Accumulated Amortization 139, ,200 82,600 62,400 Accounts Payable 45,800 91,800 62,400 73,600 Notes Payable 82,000 50, ,800 Nil Dividends Payable Nil 28,000 Nil Nil Other Accruals 11,800 41,600 25,400 25,200 Taxes Payable 39,200 38,800 73,000 24,600 Bonds Payable Nil Nil 60,000 Nil Common Stock - No Par 584, , , ,400 Opening Retained Earnings 222, , ,600 77,400 Net Income 40,200 49,000 98,200 48,200 Total Credits $1,173,800 $760,200 $1,295,200 $545,200 Other Information: 1. On January 2, 2009, the Pump Company acquired from the shareholders of the Slump Company, 90 percent of the Slump Company s outstanding voting shares for the following consideration: 500 Shares of Pump Common Stock - No Par $200,000 Note Payable To Slump Shareholders - Due June 30, ,800 Total Consideration $356,800 On that date, the Slump Company s identifiable assets and liabilities had carrying values that were equal to their fair values. The excess of the purchase price over Pump s share of these values has been allocated to Goodwill. There was no impairment of this Goodwill in either 2009 or Pump elects to record the non-controlling interest in Sump on the basis of the fair value of that Company s identifiable net assets. The Note Payable was unexpectedly paid in advance on June 30, All other Notes Payable present on the books of Pump and Sump are classified as current.

17 Assignment Problems For Chapter 5 Page On January 1, 2010, Pump sold Other Investments for proceeds of $202,600. These investments had been carried at a cost of $170,800. Pump also sold Land which had cost $21,000, for proceeds of $37, On June 30, 2010, Pump demolished an unneeded Building which had cost $37,800 and had a net book value of $10, During 2010, Pump declared and paid cash dividends of $48,000. On December 1, 2010, Slump declared a $28,000 cash dividend. This dividend was payable on January 15, 2011, to holders of record on December 20, Pump has recorded the dividends in Other Current Receivables. Slump declared no other dividends during The Pump Company s Bonds Payable were retired in Cash of $65,000 was paid which included $60,000 in par value, $1,200 in accrued interest and a $3,800 penalty for early retirement. 6. On December 31, 2010, Pump Company s Other Current Receivables include a $50,000 non-interest bearing Note Payable by Slump. Slump Company s December 31, 2010 Accounts Receivable includes $37,000 due from Pump for merchandise purchases. Slump had sold the merchandise to Pump for an amount equal to the cost of the merchandise to Slump. There are no intercompany receivables or payables on December 31, Required: Prepare a consolidated Cash Flow Statement for the Pump Company and its subsidiary, the Slump Company for the year ending December 31, Assignment Problem Five - 4 (Step Acquisition - No Profits) The carrying value and fair value of the identifiable net assets of the Slice Company are as follows: Carrying Value Fair Value December 31, 2009 $4,265,000 $4,365,000 December 31, 2010 $4,865,000 $5,065,000 On December 31, 2009, the Piece Company acquires 20 percent of the 100,000 outstanding voting shares of the Slice Company for cash of $904,000 ($45.20 per share). The remaining useful life of the Slice Company assets on which the fair value changes exist is 10 years and no salvage value is anticipated. As this investment gives Piece significant influence over Slice, it will be accounted for using the equity method. During 2010, Slice Company has Net Income of $120,000 and declares dividends of $80,000. On December 31, 2010, the Piece Company acquires an additional 50 percent of the 100,000 outstanding voting shares of the Slice Company for cash of $2,873,000 ($57.46 per share). The remaining life of the Slice Company assets on which the fair value changes exist is is now 9 years. As Piece now has control of the operations of Slice, consolidated financial statements will be prepared. Piece intends to record the non-controlling interest in Slice on the basis of the fair value of Slice s identifiable net assets. Both companies have a December 31 year end and use the straight-line method for amortizing assets.

18 Assignment Problems For Chapter 5 Page 17 Required: A. Provide the 2010 journal entries required to account for Piece s investment in Slice using the equity method. In addition, provide the journal entry to record any gain or loss on this investment that will result from Piece acquiring control of Slice on December 31, B. Determine the goodwill that will be recognized in the December 31, 2010 consolidated Balance Sheet that will be prepared for Piece and its subsidiary Slice.

19 Assignment Problems For Chapter 6 Page 18 Assignment Problems For Chapter 6 (The solutions for these problems are only available in the solutions manual that has been provided to your instructor.) Assignment Problem Six - 1 (Open Trial Balance - Profits - NCI At Fair Value) On December 31, 2009, the Pumpkin Company purchased 75 percent of the outstanding voting shares of the Squash Company for $4,200,000 in cash. On that date, the Squash Company had No Par Common Stock of $3,900,000 and Retained Earnings of $600,000. All of the Squash Company s identifiable assets and liabilities had carrying values that were equal to their fair values except for: 1. Inventories with fair values that were $60,000 more than their carrying values. 2. Land which had a fair value that was $300,000 greater than its carrying value. 3. Equipment which had a fair value of $270,000 more that its carrying value. Its remaining useful life is 15 years with no expected salvage value. 4. Long-Term Liabilities which had fair values that were $90,000 more than their carrying values and mature on December 31, Pumpkin s management elects to record the acquisition date non-controlling interest at its fair value, measured on the basis of the price paid for the controlling interest. The Balance Sheets of the Pumpkin Company and the Squash Company as at December 31, 2013 were as follows: Pumpkin and Squash Companies Balance Sheets As At December 31, 2013 Pumpkin Squash Cash and Current Receivables $ 1,620,000 $ 930,000 Inventories 1,800, ,000 Current Assets $ 3,420,000 $1,590,000 Long-Term Receivables 840, ,000 Plant and Equipment (Net) 4,500,000 2,700,000 Investment in Squash (Cost) 4,200,000 N/A Land 2,400,000 1,200,000 Total Assets $15,360,000 $5,790,000 Current Liabilities $ 480,000 $ 240,000 Long-Term Liabilities 660, ,000 Total Liabilities $ 1,140,000 $ 630,000 Shareholders Equity No Par Common Stock 10,200,000 3,900,000 Retained Earnings 4,020,000 1,260,000 Total Equities $15,360,000 $5,790,000 The Income Statements of the Pumpkin and Squash Companies for the year ending December 31, 2013 were as follows:

20 Assignment Problems For Chapter 6 Page 19 Pumpkin and Squash Companies Income Statements For The Year Ending December 31, 2013 Pumpkin Squash Sales $5,610,000 $1,770,000 Interest Revenue 84,000 30,000 Other Revenues 90,000 Nil Total Revenues $5,784,000 $1,800,000 Cost of Goods Sold $3,900,000 $1,260,000 Interest Expense 66,000 45,000 Other Expenses 690, ,000 Total Expenses $4,656,000 $1,545,000 Net Income $1,128,000 $ 255,000 Other Information: 1. In each of the years since Pumpkin acquired control over Squash, the goodwill arising on this business combination transaction has been tested for impairment. In 2011, a Goodwill Impairment Loss of $84,000 was recognized. No impairment was found in any of the other years since acquisition. 2. Both Companies use the straight line method to calculate amortization charges. 3. Pumpkin uses the cost method to carry its Investment in Squash. 4. During 2013, dividends of $360,000 were declared and paid by Pumpkin and dividends of $120,000 were declared and paid by Squash. 5. The Pumpkin Company manufactures machines with a five year life. Its Sales total in the Income Statement includes only sales of these machines. Intercompany sales of these machines are priced to provide Pumpkin with a 20 percent gross profit on sales prices in all the years under consideration. On December 31, 2011, Pumpkin sold machines it had manufactured to Squash for $150,000. Squash uses the machines in its production process. On January 1, 2013, Pumpkin sold an additional $300,000 of these machines to the Squash Company. There were no other intercompany sales of these machines in any of the years under consideration. 6. The Squash Company manufactures paper products used in offices. During 2012, Squash sold to Pumpkin $18,000 worth of office supplies of which all but $3,000 were used by Pumpkin in During 2013, Pumpkin purchased $15,000 worth of merchandise from Squash. During 2013, the Pumpkin Company used $9,000 worth of these paper products purchased from Squash. Squash s intercompany sales are priced to provide it with a 50 percent gross margin on its sales price. 7. On January 1, 2011, Squash sold a piece of equipment to Pumpkin for 20 percent more than its carrying value of $300,000. At this time, the equipment has an estimated remaining useful life of eight years, with no anticipated salvage value. 8. During 2012, Squash sold land that had a carrying value of $240,000 to Pumpkin for a profit of $30,000. One-half of the proceeds was paid at that date and the remainder is due on July 1, The Land that had the fair value increase of $300,000 on December 31, 2009 is still on the books of Squash. 9. On December 31, 2013, Squash had current receivables of $6,000 from Pumpkin and Pumpkin is owed $18,000 by Squash. Intercompany interest which was paid during 2013 on outstanding intercompany payables totalled $1,000 for Squash and $1,400 for Pumpkin.

21 Assignment Problems For Chapter 6 Page 20 Required: A. Prepare the consolidated Income Statement for the year ending December 31, 2013 of the Pumpkin Company and its subsidiary, the Squash Company. B. Prepare the consolidated Statement of Retained Earnings for the year ending December 31, 2013, of the Pumpkin Company and its subsidiary, the Squash Company. C. Prepare the consolidated Balance Sheet as at December 31, 2013 of the Pumpkin Company and its subsidiary, the Squash Company. Assignment Problem Six - 2 (Income Statement And Balance Sheet Items - NC On Assets) On January 1, 2009, the Paul Company acquired 75 percent of the outstanding voting shares of the Saul Company for $6,000,000 in cash. On this date the Saul Company had No Par Common Stock of $6,200,000 and Retained Earnings of $2,800,000. At this acquisition date, the Saul Company had Plant And Equipment that had a fair value that was $600,000 less than its carrying value, Long-Term Liabilities that had a fair value that was $200,000 more than their carrying values and Inventories with a fair value that was less than their carrying values in the amount of $800,000. The remaining useful life of the Plant And Equipment was 12 years with no anticipated salvage value. The Long-Term Liabilities were issued at par of $4,000,000 and mature on January 1, All of the other identifiable assets and liabilities of the Saul Company had fair values that were equal to their carrying values on the date of acquisition. The management of Paul elects to measure the acquisition date non-controlling interest in Saul on the basis of the fair value of the Company s identifiable net assets. On January 1, 2012, the Saul Company sells a broadcast licence to the Paul Company for $900,000. On this date the carrying value of this broadcast licence on the books of the Saul Company was $1,000,000 and the remaining useful life was five years. Amortization is calculated on a straight line basis by both companies. Between January 1, 2009 and January 1, 2014, the Saul Company had Net Income of $2,200,000 and paid dividends of $800,000. On January 1, 2014, the Retained Earnings of the Paul Company were $30,000,000. During 2014, the Paul Company declared and paid dividends of $200,000 and the Saul Company declared and paid dividends of $100,000. The Paul Company carries its Investment in Saul by the cost method. The condensed Income Statements of the two Companies for the year ending December 31, 2014 are as follows: Paul and Saul Companies Income Statements For The Year Ending December 31, 2014 Paul Saul Total Revenues $5,000,000 $2,000,000 Cost Of Goods Sold $3,000,000 $1,200,000 Other Expenses 1,500, ,000 Total Expenses $4,500,000 $1,800,000 Net Income $ 500,000 $ 200,000

22 Assignment Problems For Chapter 6 Page 21 During 2014, 40 percent of the Saul Company s Revenues resulted from sales to the Paul Company. Half of this merchandise remains in the ending inventories of the Paul Company and has not yet been paid for. The December 31, 2014 inventory balances for the Paul and Saul Companies are $950,000 and $380,000 respectively. On January 1, 2014, the inventories of the Paul Company contained purchases from the Saul Company of $500,000. All intercompany merchandise transactions are priced to provide Saul with a gross margin on sales prices of 40 percent. The Saul Company has not issued any additional Common Stock or Long-Term Liabilities since the date of its acquisition by the Paul Company. On December 31, 2014, the Paul Company had $15,000,000 in Long-Term Liabilities. In each of the years since Paul purchased the shares of Saul, the goodwill arising from this share purchase has been tested for impairment. No impairment was found in any of the years since acquisition. Required: A. Prepare the consolidated Income Statement for the year ending December 31, 2014 for the Paul Company and its subsidiary, the Saul Company. B. Calculate the amounts, showing all computations, that would be included in the consolidated Balance Sheet as at December 31, 2014 of the Paul Company and its subsidiary, the Saul Company for the following accounts: 1. Retained Earnings 2. Non-Controlling Interest 3. Inventories 4. Broadcast Licence 5. Long-Term Liabilities 6. Goodwill Assignment Problem Six - 3 (Consolidated Cash Flow Statement - Profits) The Norwood Company purchased 75 percent of the outstanding voting shares of the Sollip Company on January 1, 2009 for $2,000,000 in cash. On the acquisition date, Sollip had Retained Earnings of $1,400,000 and Common Stock of $600,000. At this time, the Sollip Company s identifiable assets and liabilities had fair values that were equal to their carrying values except for: Plant And Equipment, which had a fair value that was $40,000 more than carrying value. This Plant And Equipment had a remaining life of 10 years with no anticipated salvage value. Long-Term Liabilities with a fair value that was $80,000 less than carrying value. These Long-Term Liabilities mature on January 1, The management of Norwood elects to record the acquisition date non-controlling interest in Sollip at its fair value. This fair value will be measured on the basis of the price paid for the controlling interest. The Norwood Company carries its Investment In Sollip by the cost method. Both Companies use the straight line method to calculate amortization. The comparative Balance Sheets and the condensed Statement of Income And Change In Retained Earnings for the year ending December 31, 2012 of the Norwood Company and its subsidiary, the Sollip Company are as follows: