Consolidated statement of financial position

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Meek's Penguin Corp.

Meek's Penguin Corp. (MPC) is a Canadian company that reports its financial results in accordance with IFRS. On December 31, 20X6, MPC acquired ordinary shares of Zoebug Supply Inc. (ZSI). Four independent questions based on different quantities of shares acquired, but using the same financial results for ZSI, are set out below.

ZSI's comparative statement of financial position as at December 31, 20X7 and its statement of comprehensive income for the year ended December 31, 20X7 follow:

Zoebug Supply Inc.

Statement of financial position

As at December 31 (in '000s)

20X7

 

                             Cash                                                                             $175

20X6

$61

                                Accounts receivable and accruals                               521

406

                             Inventory                                                                        192

183

                              Note receivable                                                              150

0

                             Land                                                                                  80

220

                              Building (net)                                                                  228

240

                              Equipment (net)                                                             120

160

                             Trademark                                                                     100

     100

                              Total assets                                                               $1,566

$1,370

                                Accounts payable and accruals                                 $235

       $264

                              Long-term debt                                                              600

600

                              Ordinary shares                                                             300

300

                               Retained earnings                                                         431

     206

                               Total liabilities and equity                                         $1,566

Zoebug Supply Inc.

Statement of comprehensive income

$1,370

For the year ended December 31, 20X7 (in '000s)

                                  Sales revenue                                                                            $1,820

                                   Cost of goods sold                                                                          845

                                  Gross profit                                                                                      975

                                     Sales, general and administrative expenses                                563

                                     Depreciation and amortization expense                                          52

360

                                  Other income                                                                                   190

                                    Earnings before income tax expense                                            550

                                  Income tax expense                                                                       165

                                  Net income                                                                                 $   385

The fair value of ZSI's identifiable net assets at time of acquisition differed from its book value as indicated below (in $000s):

 

 

 

Book value

Dec. 31, 20X6

 

Fair value

Dec. 31, 20X6

Estimated remaining useful life/term to maturity

 

Estimated residual value

Inventory

183

213

N/A

N/A

Land

220

390

N/A

N/A

Building (net)

240

200

20 years

$0

Equipment (net)

160

176

4 years

$0

Trademark

100

300

N/A

$0

Long-term debt

600

620

4 years

N/A


Additional information:

1. Both companies pay income tax at a rate of 30%.

2. Both companies use the first in, first out (FIFO) cost-flow assumption to value their inventories.

3. Both companies depreciate their depreciable assets on a straight-line basis.

4. The fair value increment on the long-term debt is amortized using the straight-line method.

5. Both companies account for share-issuance costs using the retained-earnings method.

6. For impairment-testing purposes, MPC established that ZSI is a cash-generating unit (CGU).

7. On December 31, 20X7, ZSI sold land to MPC for $150,000. ZSI's net book value at time of sale was $140,000, which was the same as the estimated fair value at acquisition date of the associate (December 31, 20X6). In consideration of the transfer, MPC signed a note payable to ZSI for $150,000. The note is payable in full on December 31, 20X9. Interest at 4% per annum, payable annually, is first payable on December 31, 20X8.This is the market rate of interest for a note of this length.

8. During 20X7, MPC sold goods to ZSI for $200,000 including a 40% gross profit margin; 10% of these goods remained unsold by ZSI as at December 31, 20X7.

9. During 20X7, ZSI sold goods that it had purchased for $100,000 to MPC for $140,000; 25% of these goods remained unsold by MPC as at December 31, 20X7.

10. During 20X7, ZSI rented office space from MPC at a total cost of $50,000. This amount remained unpaid at year end.

11. MPC and ZSI only prepare accruals and other adjusting entries at year end.

Question 1

On December 31, 20X6, MPC paid $200,000 cash to acquire 20% of ZSI's outstanding ordinary shares. This level of investment provides MPC with significant influence over ZSI.

MPC tested the CGU for impairment on December 31, 20X7. MPC's investment was found to be impaired by $7,600.

Required:

In worksheet Q1(a) JEs and calcs

a) Prepare journal entries to record MPC's acquisition of ZSI and all events during 20X7 that affect MPC's Investment in ZSI account. Ensure that you provide support for your calculations. Also remember to provide a brief explanation for each journal entry as to its nature.

In worksheet Q1(b) JEs and calcs

b) Independent of part (a), assume that the balance of MPC's Investment in ZSI account on December 31, 20X9, was $280,000. This balance includes the results of all of ZSI's activities during 20X9. Three independent scenarios follow. In each one, the amount paid or received represents the fair market value of the ownership stake purchased or sold. Prepare the journal entries that MPC would record for each of these independent scenarios. Remember to support the journal entries with a brief explanation as to their nature.

i) On December 31, 20X9, MPC sold 25% of its investment in ZSI to an outside party for $65,000 cash. This transaction reduced MPC's remaining ownership by 5%, from 20% to 15%. MCP no longer has significant influence over ZSI.

ii) On December 31, 20X9, MPC purchased an additional 15% of the outstanding ordinary shares of ZSI for $200,000 cash. This transaction increased MPC's ownership stake to 35%.

iii) On December 31, 20X9, MPC purchased an additional 40% of the outstanding ordinary shares of ZSI for $510,000 cash. This transaction increased MPC's ownership stake to 60%.

Question 2

Independent of Question 1, assume that on December 31, 20X6, MPC paid $1,000,000 cash to acquire 100% of the net assets of ZSI.

Required:

In worksheet Q2 AD schedule

a) Calculate and allocate the acquisition differential including determination of the goodwill arising on the acquisition of the net assets of ZSI.

b) Prepare MPC's journal entry to record the acquisition. Support the journal entry with a brief explanation as to its nature. (3 marks)

Question 3

Independent of Questions 1 and 2, assume that on December 31, 20X6, MPC issued 100,000 of its ordinary shares to acquire 100% of the ordinary shares of ZSI. MPC's ordinary shares were actively traded at $10 at acquisition date.

MPC disbursed $23,000 cash to pay for costs directly related to the acquisition of ZSI and an additional $18,000 cash to pay for the cost of issuing the additional shares.

MPC's non-consolidated statement of financial position as at December 31, 20X6, which was prepared after all MPC's year-end adjustments had been processed but which does not include the investment made in ZSI described in the points above, is as follows:

Meek's Penguin Corp.

Statement of financial position As at December 31, 20X6 (in $000s)

Cash

$

728

Accounts receivable and accruals

 

968

Inventory

 

422

Land

 

640

Building (net)

 

1,041

Equipment (net)

 

632

Trademark

 

650

Total assets

$

5,081

Accounts payable and accruals

$

669

Long-term debt

 

1,950

Ordinary shares

 

500

Retained earnings

 

1,962

Total liabilities and equity

$ 5,081


Required:

In worksheet Q3 Consol. SFP 20X6

Refer to the acquisition differential allocation schedule that you prepared in Question 2. Use this information, together with the two companies' SFPs at December 31, 20X6, and the information provided in this question, to prepare MPC's consolidated statement of financial position at the December 31, 20X6, acquisition date. Provide a brief explanation of all adjustments made to arrive at the consolidated SFP figures.

(Note: From the Project Data file, copy and paste the template in the worksheet titled "Q3 Consolidated SFP 20X6" into your project submission file. Do not show your work in the Project Data file.)

Question 4

Independent of Questions 1 to 3, assume that on December 31, 20X6, MPC paid $720,000 cash to acquire 70% of ZSI's outstanding ordinary shares.

MPC tested the CGU for impairment on December 31, 20X7. Goodwill was found to be impaired by $18,000.

MPC's non-consolidated comparative statement of financial position as at December 31, 20X7, and its non-consolidated statement of comprehensive income for the year ended December 31, 20X7, are set out below:

Meek's Penguin Corp.
Statement of financial position As at December 31 (in '000s)

 

 

 

 

 

20X7

 

20X6

                  Cash                                                     

$      313

 

$          8

Accounts receivable and accruals 

     1,020

 

        968

                   Inventory                                              

        466

 

        422

                  Land                                                      

        790

 

        640

                    Building (net)                                        

        989

 

 1,041

                    Equipment (net)                                   

        474

 

        632

                   Trademark                                            

        650

 

        650

                   Investment                                           

        720

 

        720

                    Total assets                                          

$ 5,422

 

$ 5,081

 

 

 

 

                     Accounts payable and accruals         

$      722

 

$      669

                    Long-term debt                                    

     1,875

 

 1,950

                   Note payable                                        

        150

 

            0

                    Ordinary shares                                   

        500

 

        500

                    Retained earnings                               

     2,175

 

 1,962

                     Total liabilities and equity                    

 

$ 5,422

 

$ 5,081

Meek's Penguin Corp.

Statement of comprehensive income

For the year ended December 31, 20X7 (in '000s)

 

                    Sales revenue                                                                        

$ 2,498

                    Cost of goods sold                                                                 

        647

                   Gross profit                                                                             

 1,851

                       Sales, general and administrative expenses                       

 1264

                      Depreciation and amortization expense                               

        215

 

        372

                   Other income                                                                          

        218

                     Earnings before income tax expense                                   

        590

                    Income tax expense                                                               

        177

                   Net income                                                                             

$ 413

Required:

In worksheet Q4 AD schedules

a) Use the acquisition method to allocate the acquisition differential and determine goodwill arising on acquisition, assuming that MPC uses the identifiable net assets (INA) method to value the non-controlling interest (NCI).

b) Use the acquisition method to allocate the acquisition differential and determine goodwill arising on acquisition assuming that MPC uses the fair value enterprise (FVE) method to value the NCI.

c) Based on the solution to part (a) (where MPC uses the INA method to value the NCI), prepare an acquisition differential and impairment schedule for 20X7. Provide references for each line in the AD schedule that will be used to reference through to the consolidated financial statements.

In worksheet Q4 Interco transactions

d) Prepare a listing of intercompany transactions and balances eliminated upon consolidation.

e) Calculate all unrealized and realized intercompany profits.

- Provide references for each line in both the schedule of intercompany transactions and the schedule of unrealized/realized intercompany profits that will be used to reference through to the consolidated financial statements.
- Include a calculation of the total deferred tax asset/liability. Indicate whether the calculated figure is an asset or a liability.

In worksheet Q4 Consol. SCI & RE

f) Prepare MPC's consolidated statement of comprehensive income for the year ended December 31, 20X7, assuming that MPC uses the INA method to value the NCI. Show the allocation between the parent and NCI. Include references to your supporting calculations, which will typically be the references in the supporting schedules prepared in parts (a) through (e) of Question 4.

(Note: From the Project Data file, copy and paste the template in the worksheet titled "Q4

Consolidated SCI 20X7" into your project submission. Do not show your work in the Project Data file.)

g) Prepare MPC's consolidated statement of retained earnings for the year ended December 31, 20X7, assuming that MPC uses the INA method to value the NCI.

In worksheet Q4 Consol. SFP & NCI

h) Calculate the NCI on the statement of financial position as at December 31, 20X7, assuming that MPC uses the INA approach to value the NCI.

i) Prepare MPC's consolidated statement of financial position as at December 31, 20X7, assuming that MPC uses the INA method to value the NCI. Include references to your supporting calculations, which will typically be the references in the supporting schedules prepared in parts (a) through (h) of Question 4.

(Note: From the Project Data file, copy and paste the template in the worksheet titled "Q4 Consolidated SFP 20X7" into your project submission file. Do not show your work in the Project Data file.)

Verified Expert

The task pertains to calculating the cases based on the consolidation adjustments. The entries have been journalized wherever required with proper explanations. Further, the complete solution has been done in the word file along with the computations done in the word file itself. The excel file is just for reference in case the client wants to understand the formulas and the linkages done in the assignment. The acquiring of the enterprises have been accounted for in the books as per the requirement of the questions.

Reference no: EM131277847

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Reviews

inf1277847

2/14/2018 1:43:55 AM

hello. I got the paper as discussed with you, it seems best as per the requirements. Thanks for sending it! it done right? I see numerous more papers in my future and, ideally, the expert will be accessible to work with me?. Thank you so much for the assistance you provided to me. Its so nice. thank you so much.

inf1277847

1/2/2018 4:28:30 AM

1. JE in question 1 (Means a Journal Entry) 2. AD in question 2 (Probably means the Adjustment) 2017 & 2016 not 2006 & 2007 as you worded it "Further, the net income of the ZSI is $385 for the year ended 2007. Therefore, the retained earnings should be increased from $206 in 2006 to $206+385=$591 in 2007" -------- Just do what you think is right--------------- Further, provide the class notes of this chapter, so that the same can be determined correctly. ------------- I dont have the notes. Just do your best job and send it to me within the hour.

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