Problem on balance sheet, Financial Accounting

Problem on balance sheet:

At the beginning of 20X2, Dahl Ltd. acquired 8% of the outstanding common shares of Tippy Ltd. for $400,000. This amounted to 80,000 shares. 

At the beginning of 20X4, Dahl acquired an additional 270,000 shares of Tippy for $1,512,000. At this acquisition date, Tippy's shareholders' equity consisted of the following:

          4% non-cumulative preferred shares                     $1,000,000
          Common shares, 1,000,000 outstanding shares      2,400,000
          Retained earnings                                                   2,160,000

At this acquisition date, the fair values of the net identifiable assets equalled their carrying values except for the following:

                                                          Excess of fair value
                                                          over carrying value

                             Inventory                        $  96,000

                             Land                                 800,000

At the beginning of 20X5, Dahl acquired an additional 450,000 shares of Tippy for 2,880,000.  The shares were trading for $6 per share.  At this acquisition date, Tippy's shareholders' equity consisted of the following:


          4% non-cumulative preferred shares                     $1,000,000
          Common shares, 1,000,000 outstanding shares      2,400,000
          Retained earnings                                                   2,560,000

At this acquisition date, the fair values of the net identifiable assets equalled their carrying values except for the following:

                                                          Excess of fair value over/(under)
                                                                   carrying value

                   Accounts receivable                      $W(48,000)
                   Building and equipment (net)            720,000

                   Long-term debt                        160,000

 

The building and equipment have an estimated remaining life of 10 years and the long-term debt matures in 10 years.

The condensed separate-entity financial statements for December 31, 20X6 are as follows:

Balance Sheets

As at December 31, 20X6

 

Dahl Ltd.

Tippy Ltd.

Assets:

 

 

Cash

$      400,000

$    560,000

Accounts receivable

1,920,000

440,000

Inventories

400,000

320,000

Land

4,400,000

800,000

Buildings and equipment (net)

8,488,000

7,200,000

Investment in Tippy (at cost)

4,792,000

____-____

    Total assets

$ 20,400,000

$ 9,320,000

Liabilities:

 

 

Accounts payable

$   2,400,000

$    400,000

Long-term debt

3,200,000

1,600,000

    Total liabilities

5,600,000

2,000,000

Shareholders' equity:

 

 

4% non-cumulative preferred shares

-

 1,000,000

Common shares

7,200,000

2,400,000

Retained earnings

7,600,000

3,920,000

    Total shareholders' equity

14,800,000

7,320,000

Total liabilities and shareholders' equity

$ 20,400,000

$ 9,320,000

Income Statements

Year Ended December 31, 20X6

 

 

Dahl Ltd.

Tippy Ltd.

Sales

$ 12,000,000

$ 7,200,000

Dividend income

96,000

-

Gain on sale of equipment

_______

168,000

   Total revenue

12,096,000

7,368,000

Cost of goods sold

7,600,000

4,960,000

Operating expenses

2,374,400

944,000

Income tax expense

825,600

584,000

   Total expenses

10,800,000

6,488,000

Net income

1,296,000

$    880,000

 

Additional information:

  • Dahl and Tippy declared and paid dividends during 20X6 of $400,000 and $160,000, respectively.
  • At the end of 20X5, the inventories of Dahl and Tippy included goods with intercompany profits of $68,000 and $152,000 respectively.
  • During 20X6, Dahl sold goods to Tippy for $3,120,000 at a gross margin of 45%.  At the end of 20X6, $200,000 of these goods were still in Tippy's inventory.
  • During 20X6, Tippy sold goods to Dahl for $2,080,000 at a gross margin of 35%.  At the end of the year, $320,000 of these goods were still in Dahl's inventory.
  • On December 30, 20X6, Tippy sold some equipment to Dahl for $360,000.  At that time, the equipment had a book value of $192,000 and an estimated remaining life of 8 years.  Dahl has paid Tippy $252,000 and will pay the balance on January 31, 20X7.
  • Both Dahl and Tippy use the straight-line method of amortization for their buildings and equipment.
  • In 20X5, a goodwill impairment of $73,600 was recognized and a further impairment of $46,400 occurred in 20X6.  Impairment losses are allocated 80% to Dahl and 20% to the non-controlling interest.
  • Both companies are taxed at an average rate of 40%.

 

Posted Date: 2/12/2013 4:51:54 AM | Location : United States







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