Reference no: EM13348026

Problem 1

Pre-Contribution Balance Sheets and Fair Values

June 30, 20X9

(in thousands of $)

                                                    Swag Co.               Perk Ltd.

	Pre- Contribution	Fair Value	Pre- Contribution	Fair Value
Assets:
Cash and cash equivalents	1,645	1,645	840	840
Accounts receivable	1,400	1,400	1,260	1,260
Land	3,500	5,950	-	-
Building (net)	9,450	7,700	5,880	7,700
Equipment (net)	420	525	2,170	2,800
Total assets	16,415		10,150
Liabilities and shareholders' equity:
Accounts payable	455	455	770	770
Long-term debt	1,400	1,400	700	630
Total liabilities	1,855		1,470
Common shares	10,500		4,865
Retained earnings	4,060		3,815
Total shareholders' equity	14,560		8,680
Total liabilities and shareholders' equity	16,415		10,150

Swag Co. acquired Perk on June 30, 20X9.  Both companies have June 30 year-ends.  Before the combination, Swag and Perk had, respectively, 840,000 and 525,000 common shares, issued and outstanding.

Required:

Prepare Swag's consolidated balance sheet under each of the given independent situations:

a) Swag purchased the assets and assumed the liabilities of Perk by paying $1,400,000 in cash and issuing a $12,600,000 note.

b) Swag issued 280,000 common shares in exchange for all of Perk's outstanding shares. The fair value of the Swag shares was $14,000,000.

c) In exchange for all of Perk's outstanding shares, Swag paid $700,000 cash and issued 189,000 common shares with a market value of $9,450,000.

Problem 2

Balance Sheets

December 31, 20X3

	GreenTower Ltd.	BlueLoft Ltd.
Assets:
Current assets:
Cash	$   156,000	$   143,000
Accounts receivable	195,000	175,500
Inventory	312,000	253,500
Total current assets	663,000	572,000
Land	923,000	-
Equipment	897,000	1,183,000
Accumulated amortization	(663,000)	(416,000)
Investment in Blue Loft	1,409,200	-
Goodwill*	98,800	__-____
Total assets	3,328,000	1,339,000
Liabilities and shareholders' equity:
Liabilities:
Accounts payable	184,600	78,000
Bonds payable	780,000	260,000
Total liabilities	964,600	338,000
Shareholders' equity:
Common shares	650,000	325,000
Retained earnings	1,713,400	676,000
Total shareholders' equity	2,363,400	1,001,000
Total liabilities and shareholders' equity	$3,328,000	$1,339,000

        *from an acquisition prior to Blue Loft

 

Income Statements

Year Ended December 31, 20X3

	GreenTower Ltd.	BlueLoft Ltd.
Sales revenue	$1,560,000	$1,283,100
Cost of goods sold	1,040,000	845,000
	520,000	438,100
Gain on sale of land	___-___	273,000
	520,000	711,100
Operating expense	305,500	464,100
Net income	214,500	247,000

Statements of Retained Earnings

Year Ended December 31, 20X3

	Green Tower Ltd.	BlueLoft Ltd.
Retained earnings, December 31, 20X2	$1,498,900	$ 429,000
Net income	214,500	247,000
Retained earnings, December 31, 20X3	$1,713,400	$ 676,000

Blue Loft Ltd.

Carrying and Fair Values

January 1, 20X2

	Carrying Value	Fair Value
Cash	$   104,000	$   104,000
Accounts receivable	128,700	128,700
Inventory	231,400	253,500
Land	650,000	811,000
Equipment	390,000	151,000
Accumulated amortization	(260,000)
Accounts payable	91,000	91,000
Bonds payable	260,000	260,000
Common shares	325,000	-
Retained earnings	568,100	-

• On January 1, 20X2, Green Tower Ltd. acquired all the outstanding common shares of Blue Loft Ltd. for $1,409,200 cash.
• At December 31, 20X2, Green Tower's inventory included goods that it had purchased from Blue Loft for $58,500.  The intercompany profit on these goods was $15,600.  All these goods were sold to third parties in 20X3.
• During 20X3, Green Tower purchased goods from Blue Loft for $195,000.  Blue Loft earned a gross profit of $65,000 on this sale.  At December 31, 20X3, Green Tower still had 40% of these goods in its inventory.
• During 20X3, Green Tower sold goods to Blue Loft for $507,000.  Green Tower earned a gross profit of $117,000 on this sale.  At December 31, 20X3, Blue Loft still had 20% of these goods in its inventory.
• In December, 20X3, Blue Loft sold a tract of land to Green Tower for $923,000. Blue Loft had purchased the land 8 years ago for $650,000.
• At the time of Green Tower's acquisition, Blue Loft's equipment had a remaining estimated useful life of 3 years.  Blue Loft uses the straight-line method of amortization, with no residual value.

Required:

Prepare the consolidated financial statements for 20X3 using the direct method. 

Problem 3

Cox Ltd. acquired 70% of the common shares of March Co. at the beginning of 20X7.  At the acquisition date, March's shareholders' equity consisted of the following:

                        Common shares          $720,000
                        Retained earnings          360,000

The only acquisition differential pertained to goodwill.

Cox's "Investment in March" general ledger account is as follows:

1/2/X7    Cost                     $ 781,200	12/31/X7  Dividends  $33,600
12/31/X7 Investment Income   62,160	12/31/X8  Dividends    42,000
12/31/X8 Investment Income   76,440	12/31/X9  Dividends    50,400
12/31/X9 Investment income   94,080
Balance    $ 887,880

March usually declares half of its profits as dividends.

Cox uses the entity theory method to consolidate its subsidiary.

Required:

a) Determine the total amount of dividends declared by March for 20X7.

b) Determine March's profit for 20X8.

c) Determine the non-controlling interest amounts for Cox's 20X9

                     i. consolidated income statement, and  

                    ii. consolidated balance sheet. 
d) Determine the amount of goodwill that should appear on Cox's 20X9 consolidated balance sheet.