ACT 3050 Lecture Notes - Lecture 4: Life Insurance, The Item, Impaired Asset
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Parson Company acquired an 80 percent interest in Syber Companyon January 1, 2017. Any portion of Syber's business fair value inexcess of its corresponding book value was assigned to trademarks.This intangible asset has subsequently undergone annualamortization based on a 15-year life. Over the past two years,regular intra-entity inventory sales transpired between the twocompanies. No payment has yet been made on the latest transfer. Alldividends are paid in the same period as declared.
The individual financial statements for the two companies aswell as consolidated totals for 2018 follow:
| Parson Company | Syber Company | Consolidated Totals | |||||||||
| Sales | $ | (900,000 | ) | $ | (700,000 | ) | $ | (1,460,000 | ) | ||
| Cost of goods sold | 550,000 | 450,000 | 870,000 | ||||||||
| Operating expenses | 120,000 | 130,000 | 253,000 | ||||||||
| Income of Syber | (89,800 | ) | 0 | 0 | |||||||
| Separate company net income | $ | (319,800 | ) | $ | (120,000 | ) | |||||
| Consolidated net income | $ | (337,000 | ) | ||||||||
| Net income attributable tononcontrolling interest | 17,200 | ||||||||||
| Net income attributable toParson Company | $ | (319,800 | ) | ||||||||
| Retained earnings, 1/1/18 | $ | (626,600 | ) | $ | (310,000 | ) | $ | (626,600 | ) | ||
| Net income (above) | (319,800 | ) | (120,000 | ) | (319,800 | ) | |||||
| Dividends declared | 80,000 | 40,000 | 80,000 | ||||||||
| Retained earnings, 12/31/18 | $ | (866,400 | ) | $ | (390,000 | ) | $ | (866,400 | ) | ||
| Cash and receivables | $ | 398,000 | $ | 90,000 | $ | 464,000 | |||||
| Inventory | 200,000 | 180,000 | 365,500 | ||||||||
| Investment in Syber Company | 398,400 | 0 | 0 | ||||||||
| Land, buildings, andequipment | 400,000 | 290,000 | 690,000 | ||||||||
| Trademarks | 0 | 0 | 32,500 | ||||||||
| Total assets | $ | 1,396,400 | $ | 560,000 | $ | 1,552,000 | |||||
| Liabilities | $ | (320,000 | ) | $ | (80,000 | ) | $ | (378,900 | ) | ||
| Common stock | (170,000 | ) | (90,000 | ) | (170,000 | ) | |||||
| Additional paid-in capital | (40,000 | ) | 0 | (40,000 | ) | ||||||
| Noncontrolling interest inSyber | 0 | 0 | (96,700 | ) | |||||||
| Retained earnings (above) | (866,400 | ) | (390,000 | ) | (866,400 | ) | |||||
| Total liabilities andequities | $ | (1,396,400 | ) | $ | (560,000 | ) | $ | (1,552,000 | ) | ||
What method does Parson use to account for its investment inSyber?
What is the balance of the intra-entity inventory gross profitdeferred at the end of the current period?
What amount was originally allocated to the trademarks?
What is the amount of the current year intra-entity inventorysales?
Were the intra-entity inventory sales made upstream ordownstream?
What is the balance of the intra-entity liability at the end ofthe current year?
What amount of intra-entity gross profit was deferred from thepreceding period and recognized in the current period?
What was the ending Noncontrolling Interest in Syber Companycomputed?
With a tax rate of 40 percent, what income tax journal entry isrecorded if the companies prepare a consolidated tax return?
With a tax rate of 40 percent, what income tax journal entry isrecorded if these two companies prepare separate tax returns?
| Sendelbach Corporation is a U.S.–based organization with operations throughout the world. One of its subsidiaries is headquartered in Toronto. Although this wholly owned company operates primarily in Canada, it engages in some transactions through a branch in Mexico. Therefore, the subsidiary maintains a ledger denominated in Mexican pesos (Ps) and a general ledger in Canadian dollars (C$). As of December 31, 2015, the subsidiary is preparing financial statements in anticipation of consolidation with the U.S. parent corporation. Both ledgers for the subsidiary are as follows: |
| Main Operation—Canada | ||
| Debit | Credit | |
| Accounts payable | C$ 39,605 | |
| Accumulated depreciation | 41,000 | |
| Buildings and equipment | C$ 181,000 | |
| Cash | 40,000 | |
| Common stock | 64,000 | |
| Cost of goods sold | 217,000 | |
| Depreciation expense | 8,300 | |
| Dividends, 4/1/15 | 33,000 | |
| Gain on sale of equipment, 6/1/15 | 6,400 | |
| Inventory | 93,000 | |
| Notes payable—due in 2018 | 83,000 | |
| Receivables | 82,000 | |
| Retained earnings, 1/1/15 | 149,590 | |
| Salary expense | 37,000 | |
| Sales | 326,000 | |
| Utility expense | 10,400 | |
| Branch operation | 7,895 | |
| Totals | C$ 709,595 | C$ 709,595 |
| Branch Operation—Mexico | ||
| Debit | Credit | |
| Accounts payable | Ps 64,900 | |
| Accumulated depreciation | 39,900 | |
| Building and equipment | Ps 54,000 | |
| Cash | 66,000 | |
| Depreciation expense | 3,400 | |
| Inventory (beginning—income statement) | 37,000 | |
| Inventory (ending—income statement) | 35,000 | |
| Inventory (ending—balance sheet) | 35,000 | |
| Purchases | 71,000 | |
| Receivables | 35,000 | |
| Salary expense | 10,400 | |
| Sales | 138,000 | |
| Main office | 34,000 | |
| Totals | Ps 311,800 | Ps 311,800 |
| Additional Information |
| • | The Canadian subsidiary’s functional currency is the Canadian dollar, and Sendelbach’s reporting currency is the U.S. dollar. The Canadian and Mexican operations are not viewed as separate accounting entities. |
| • | The building and equipment used in the Mexican operation were acquired in 2005 when the currency exchange rate was C$0.22 = Ps 1. |
| • | Purchases should be assumed as having been made evenly throughout the fiscal year. |
| • | Beginning inventory was acquired evenly throughout 2014; ending inventory was acquired evenly throughout 2015. |
| • | The Main Office account on the Mexican records should be considered an equity account. This balance was remeasured into C$7,895 on December 31, 2015. |
| • | Currency exchange rates for 1 Ps applicable to the Mexican operation follow: |
| Weighted average, 2014 | C$ | 0.27 |
| January 1, 2015 | 0.29 | |
| Weighted average rate for 2015 | 0.31 | |
| December 31, 2015 | 0.32 | |
| • | The December 31, 2014, consolidated balance sheet reported a cumulative translation adjustment with a $50,950 credit (positive) balance. |
| • | The subsidiary’s common stock was issued in 2004 when the exchange rate was $0.43 = C$1. |
| • | The subsidiary’s December 31, 2014, Retained Earnings balance was C$149,590.00, a figure that has been translated into US$71,043. |
| • | The applicable currency exchange rates for 1 C$ for translation purposes are as follows: |
| January 1, 2015 | US$ | 0.70 |
| April 1, 2015 | 0.69 | |
| June 1, 2015 | 0.68 | |
| Weighted average rate for 2015 | 0.67 | |
| December 31, 2015 | 0.65 | |
| a. | Remeasure the Mexican operation’s figures into Canadian dollars. (Hint: Back into the beginning net monetary asset or liability position.) (Input all amounts as positive values.)
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