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On January 1, Year 7, Prudent purchased 75% of the outstanding shares
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Assignment Task
1. On January 1, Ye ar 7, Prudent purchased 75% of the outstanding shares of Safe for $1,287,000.
At that time, Safe`s assets and liabilities had the following book and fair values.
| Book Value | Fair Value | |
| Cash | $140,000 | $140,000 |
| Account receivable | 350,000 | 350,000 |
| Inventory | 345,000 | 351,000 |
| capital assets | 1,000, 000 | 1,070,000 |
| $1,835,000 | $1,911,000 | |
| Account payble | $255,00 | $255,00 |
| Common shares | 300,000 | |
| Retained earnings | 1,280,000 | |
| Capital Assets have a 10 year remaining life. | $1,835,000 |
Balance sheet
| Prudent | safe | |
| Cash | $78,000 | $160,000 |
| Account receivable | 350,000 | 410,000 |
| Inventory | 42 0,000 | 564,000 |
| capital assets | 2,075,000 | 950,000 |
| $4,210,000 | $2,084,000 | |
| Account payble | $55,000 | $377,000 |
| Long - term debt | 900,000 | |
| Common shares | 600,000 | 300,000 |
| Retained earnings | 2,580,000 | 1,347,000 |
Statement of income and Retained Earnings
Statement of income and Retained Earnings
| Sales | $3,750,000 | $980,000 |
| cost of goods Sold | 2,500,000 | 392,000 |
| 1.250,000 | 588,000 | |
| other expenses | 755,000 | 328,000 |
| Interest on long term debt | 90,000 | |
| Depreciation | 70,000 | 50,000 |
| Other income | (60,000) | |
| 855,000 | 378,000 | |
| Net income Before tax | 395,000 | 210,000 |
| income tax | 124,500 | 63,000 |
| Net income after tax | 270,500 | 147,000 |
| Retained Earnings | 2,459,500 | 1,280,000 |
| Dividends declared | (150,000) | (80,000) |
| Retained earnings december | $2,580,000 | $1,347,000 |
During Year 7, Prudence sold goods to Safe for $130,000 plus 100 times the last two digits of your student number. For example, if your student number is T00691531, then the last two digits are 31, and 31 times 100 is 3,100. Therefore, the sales price would be $133,100. These goods cost Prudence $95,000. Safe sold 60% of these goods during Year 7. Also during Year 7, Safe sold goods to Prudence for $90,000 earning a gross profit of 40%. Prudence had 20% of these goods in its Year 7 ending inventory. The tax rate for both companies is 30%. On December 31, Year 7, Prudence determined that there was a $4,000 goodwill impairment. These were the only intercompany sales during Year 7. Both companies use straight-line depreciation.
Prudence accounts for Safe using the Fair Value Enterprise method (Entity theory) and cost methods.
Required
1. Prepare all the calculations required to prepare consolidated financial statements.
1. Calculate goodwill using fair values.
2. Calculate acquisition differential and prepare the ADA table. (2 marks)
3. Calculate unrealized inventory profits before and after tax
4. Calculate consolidated net income and the NCI share.
5. Calculate consolidated retained earnings and NCI Balance Sheet.
Calculations above are required in order to earn marks on part b). Assignments submitted without supporting calculations will receive zero for this question.
2. Prepare a consolidated income statement that includes a section below net income attributing income to shareholders of Prudence and NCI shareholders. Prepare a consolidated balance sheet for Year 7. Prepare statements in good form. (18 marks)
Show each change individually. If your total for that account is wrong, then you can still get part marks for the correct changes.
| Pillar | salt | |
| cash | S 50,000 | S 20,000 |
| Account Receivable | 150,000 | 160,000 |
| Inventory | 180,000 | 100,000 |
| Land | 500,000 | 300,000 |
| Equipment | 4,500,000 | 2,400,000 |
| Accurmulated depreciation equipment | -1,770,000 | -1,240,000 |
| investment in salt | 800,000 | |
| others investment | 100,000 | |
| Total Assets | $ 4.510.000 | $ 1.740.000 |
| Accounts payble | 4.510.000 | 200,000 |
| Long Term liabilities | 300,000 | 500,000 |
| common shares | 1,200,000 | 300,000 |
| Retained earnings | 2,560,000 | 740,000 |
| Total liabilities and shareholders equity | $4.510,000 | $1.740.000 |
| Pillar | Salt | |
| sales | 2,000,000 | 1,500,000 |
| Cost of goods sold | 1,200,000 | 900,000 |
| Gross profit | 800,000 | 600,000 |
| Royalty income | 150,000 | |
| Dividend income | 72,000 | |
| Depreciation and amortization expense | 250,000 | 120,000 |
| other expense | 187,000 | 221,000 |
|
Income Tax expense |
120,000 | 20,000 |
| Net income | 465.000 | 189.000 |
| Retained earnings beginning of year | 2,395,000 | 641,000 |
| Net income | 465,000 | 189,000 |
| Dividends | 300,000 | 90,000 |
| Retained earnings end of year | 2,560.000 | 740.000 |
Other information:
1. Intercompany sales: On January 1, Year 10: Salt had on hand $30,000 of inventory purchased from Pillar. Pillar had on hand $90,000 of inventory purchased from Salt. Both companies use a gross profit of 40% of sales. During Year 10, Pillar sold $90,000 PLUS 1,200 times the last 2 digits of your student number of goods to Salt. On December 31, Year 10, 40% of the goods were unsold. For example, if your student number is T99934724, then the last two digits are 24, and times 1,200 = 28,800. The sale amount would be 118,800. During 2010 Salt sold $720,000 PLUS 1,200 times the last 2 digits of your student number of goods to Pillar. On Dec. 31, Year 10, 20% were unsold. Both companies have a gross profit on sales of 40%. There were no other intercompany sales.
2. During Year 6, Pillar sold land to Salt at a profit of $60,000 plus 1,000 times the last digit of your student number. For example, if your student number is T99934724, then the last digit is 4, and times 1,000 = 4,000. The land profit would then be 64,000. Salt still owns the land.
Required:
1. Prepare all the calculations required to prepare consolidated financial statements.
1. Calculate the acquisition differential, goodwill, and NCI, and prepare the ADA table
2. Calculate unrealized inventory profits before and after tax
3. Calculate consolidated net income and the NCI share.
4. Calculate consolidated retained earnings and NCI Balance Sheet. Calculations above are required in order to earn marks on part b). Assignments submitted without supporting calculations will receive zero for this question. 2. Prepare a consolidated income statement for Year 10 that includes a section below net income attributing income to shareholders of Pillar and NCI shareholders. Prepare a consolidated balance sheet for Year 10. Prepare statements in good form.
Question 5
North Rustico Corp. purchased all the outstanding shares Tuna Corp. for 13 million Tunisian Dinars (TND) on December 31, Year 1. On that date, the fair values of Tuna's assets and liabilities were equal to their carrying amounts. The Year 2 and Year 1 comparative balance sheets for Tuna are below:
Balance Sheet
| Year 2 | Year 1 | |
| Current monetary assets | TND 10,780,000 | TND 9,600,000 |
| Inventory | 1,800,000 | 2,400,000 |
| Plant and equipment | 6,600,000 | 7,200,000 |
| 19,180,000 | 19,200,000 | |
| Current monetary liabilities | 1,900,000 | 2,400,000 |
| Bonds payable Dec. 31, Year 6 | 4,800,000 | 4,800,000 |
| Common shares | 5,000,000 | 5,000,000 |
| Retained earnings | 7,480,000 | 7,000,000 |
| 19,180,000 | 19,200,000 |
Question 6
On January 1, Year 2, Page Company acquired 70% of the outstanding common shares of Sage Lid. for $45,500 in cash On that date, Sage had $20,000 in common shares outstanding and $20,000 in retained earnings. Al the lime of the acquisition, the book value of each of Sage's assets was equal to its fair value except for the following:
| Book value | Fair value | |
| Inventory | $20,000 | $25,000 |
| Buildings and equipment (cost) | $60,000 | $60,000 |
| Less: Accumulated depreciation ($10,000) |
The buildings and equipment had a remaining useful life of 10 years on the acquisition date, and the inventory on hand at the lime of the purchase was sold in Year 2. Any excess paid over the fair value was for Sage's good reputation in the herb industry, which Page set up as goodwill Following are the financial statements for Page and Sage at December 31, Year 9.
| PAGE | SAGE | |
| Assets | ||
| Cash | $ 29,500 | $ 10,000 |
| Accounts receivable (net) | 60,000 | 20,000 |
| Inventor | 45,000 | |
| Investment in Sage ( cost method) | 45,000 | |
| Buildings and equipment | 90,000 | 100,000 |
| Accumulated depreciation | (20,000) | (50,000) |
| Liabilities | $250,000 | $110,000 |
| Current liabilities | $ 40,000 | $ 25,000 |
| Deferred tax liabilit | 10,000 | 5 000 |
| Shareholders' equity | ||
| Ordinary shares | $ 50,000 | $ 30,000 |
| Retained earning | $ 70,000 | $ 20,000 |
| 130,000 | 60 000 | |
| 200,000 | 80 000 | |
| $250,000 | $110,000 |
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