On January 1, 2017, Lamar Corp. (CAD) purchased 80% of Martin Inc, an American company, for US$50,000. Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2017. Martin's January 1, 2017 Balance Sheet is shown below (in U.S. dollars):
Current Monetary Assets $50,000
Inventory
$40,000
Plant and Equipment
$25,000
Total Assets
$115,000
Current Liabilities
$45,000
Bonds Payable (maturity: January 1, 2022)
$20,000
Common Shares
$30,000
Retained Earnings
$20,000
Total Liabilities and Equity
$115,000
The following exchange rates were in effect during 2017:
January 1, 2017: US $1 = CDN $1.3250 Average for 2017: US $1 = CDN $1.3350 Date when Inventory Purchased: US $1 = CDN $1.34 December 31, 2017: US $1 = CDN $1.35
Dividends declared and paid December 31, 2017. The financial statements of Lamar (in Canadian dollars) and Martin (in U.S. dollars) are shown below:
Current Monetary Assets
LAMAR
$42,050
MARTIN
$65,000
Inventory
$60,000
$50,000
Plant and Equipment
$23,500
$20,000
Investment in Martin (at Cost)
$66,250
-
Assets
$191,800
$135,000
Current Liabilities
$50,000
$48,000
Bonds Payable (maturity: January 1, 2022)
$35,000
$20,000
Common Shares
$60,000
$30,000
Retained Earnings
$30,000
$20,000
Net Income
$28,800
$27,000
Dividends
($12,000)
($10,000)
Liabilities and Equity
$191,800
$135,000
1) Compute Martin's exchange gain or loss for 2017 if Martin is considered to be a self-sustaining foreign subsidiary.
2) Translate Martin's 2017 Income Statement into Canadian dollars if Martin is considered to be a self-sustaining foreign subsidiary.
3) Calculate Lamarâs Consolidated Net Income for 2017 if Martin is considered to be a self-sustaining foreign subsidiary.
4) Compute Martin's exchange gain or loss for 2017 if Martin is considered to be an integrated foreign subsidiary.
5) Translate Martin's 2017 Income Statement into Canadian dollars if Martin is considered to be an integrated foreign subsidiary.
6) Translate Martin's December 31, 2017 Balance Sheet into Canadian dollars if Martin is considered to be an integrated foreign subsidiary.
On January 1, 2017, Lamar Corp. (CAD) purchased 80% of Martin Inc, an American company, for US$50,000. Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2017. Martin's January 1, 2017 Balance Sheet is shown below (in U.S. dollars):
| Current Monetary Assets | $50,000 |
| Inventory | $40,000 |
| Plant and Equipment | $25,000 |
| Total Assets | $115,000 |
| Current Liabilities | $45,000 |
| Bonds Payable (maturity: January 1, 2022) | $20,000 |
| Common Shares | $30,000 |
| Retained Earnings | $20,000 |
| Total Liabilities and Equity | $115,000 |
The following exchange rates were in effect during 2017:
| January 1, 2017: | US $1 = CDN $1.3250 |
| Average for 2017: | US $1 = CDN $1.3350 |
| Date when Inventory Purchased: | US $1 = CDN $1.34 |
| December 31, 2017: | US $1 = CDN $1.35 |
Dividends declared and paid December 31, 2017. The financial statements of Lamar (in Canadian dollars) and Martin (in U.S. dollars) are shown below:
| Current Monetary Assets | LAMAR $42,050 | MARTIN $65,000 |
| Inventory | $60,000 | $50,000 |
| Plant and Equipment | $23,500 | $20,000 |
| Investment in Martin (at Cost) | $66,250 | - |
| Assets | $191,800 | $135,000 |
| Current Liabilities | $50,000 | $48,000 |
| Bonds Payable (maturity: January 1, 2022) | $35,000 | $20,000 |
| Common Shares | $60,000 | $30,000 |
| Retained Earnings | $30,000 | $20,000 |
| Net Income | $28,800 | $27,000 |
| Dividends | ($12,000) | ($10,000) |
| Liabilities and Equity | $191,800 | $135,000 |
1) Compute Martin's exchange gain or loss for 2017 if Martin is considered to be a self-sustaining foreign subsidiary.
2) Translate Martin's 2017 Income Statement into Canadian dollars if Martin is considered to be a self-sustaining foreign subsidiary.
3) Calculate Lamarâs Consolidated Net Income for 2017 if Martin is considered to be a self-sustaining foreign subsidiary.
4) Compute Martin's exchange gain or loss for 2017 if Martin is considered to be an integrated foreign subsidiary.
5) Translate Martin's 2017 Income Statement into Canadian dollars if Martin is considered to be an integrated foreign subsidiary.
6) Translate Martin's December 31, 2017 Balance Sheet into Canadian dollars if Martin is considered to be an integrated foreign subsidiary.
Related questions
The following are Skysong Corp.âs comparative balance sheetaccounts at December 31, 2017 and 2016, with a column showing theincrease (decrease) from 2016 to 2017.
COMPARATIVE BALANCE SHEETS | |||||||||
2017 | 2016 | Increase | |||||||
| Cash | $808,400 | $703,500 | $104,900 | ||||||
| Accounts receivable | 1,117,000 | 1,168,800 | (51,800 | ) | |||||
| Inventory | 1,861,000 | 1,731,000 | 130,000 | ||||||
| Property, plant, and equipment | 3,286,500 | 2,949,500 | 337,000 | ||||||
| Accumulated depreciation | (1,153,400 | ) | (1,039,600 | ) | (113,800 | ) | |||
| Investment in Myers Co. | 312,100 | 272,900 | 39,200 | ||||||
| Loan receivable | 247,900 | â | 247,900 | ||||||
| Total assets | $6,479,500 | $5,786,100 | $693,400 | ||||||
| Accounts payable | $1,007,300 | $954,200 | $53,100 | ||||||
| Income taxes payable | 29,700 | 49,700 | (20,000 | ) | |||||
| Dividends payable | 79,200 | 99,500 | (20,300 | ) | |||||
| Lease liabililty | 396,700 | â | 396,700 | ||||||
| Common stock, $1 par | 500,000 | 500,000 | â | ||||||
| Paid-in capital in excess of parâcommon stock | 1,485,200 | 1,485,200 | â | ||||||
| Retained earnings | 2,981,400 | 2,697,500 | 283,900 | ||||||
| Total liabilities and stockholdersâequity | $6,479,500 | $5,786,100 | $693,400 | ||||||
Additional information:
| 1. | On December 31, 2016, Skysong acquired 25% of Myers Co.âscommon stock for $272,900. On that date, the carrying value ofMyersâs assets and liabilities, which approximated their fairvalues, was $1,091,600. Myers reported income of $156,800 for theyear ended December 31, 2017. No dividend was paid on Myersâscommon stock during the year. | |
| 2. | During 2017, Skysong loaned $296,700 to TLC Co., an unrelatedcompany. TLC made the first semiannual principal repayment of$48,800, plus interest at 10%, on December 31, 2017. | |
| 3. | On January 2, 2017, Skysong sold equipment costing $59,700,with a carrying amount of $37,600, for $40,300 cash. | |
| 4. | On December 31, 2017, Skysong entered into a capital lease foran office building. The present value of the annual rental paymentsis $396,700, which equals the fair value of the building. Skysongmade the first rental payment of $59,600 when due on January 2,2018. | |
| 5. | Net income for 2017 was $363,100. | |
| 6. | Skysong declared and paid the following cash dividends for 2017and 2016. |
2017 | 2016 | |||
| Declared | December 15, 2017 | December 15, 2016 | ||
| Paid | February 28, 2018 | February 28, 2017 | ||
| Amount | $79,200 | $99,500 |
Prepare a statement of cash flows for Skysong Corp. for the yearended December 31, 2017, using the indirect method.
On 1 July 2017, Panda Ltd acquired all the issued shares ofSmarty Ltd. Panda Ltd paid $250,000 more than the equity itacquired in the fair value of Smarty Ltdâs net assets. At the dateof acquisition, the shareholderâs equity of S
On 1 July 2017, Panda Ltd acquired all the issued shares ofSmarty Ltd. Panda Ltd paid $250,000 more than the equity itacquired in the fair value of Smarty Ltdâs net assets. At the dateof acquisition, the shareholderâs equity of Smarty Ltd was asfollows.
$
Share capital
100,000
Retained earnings
175,000
Total
275,000
All the assets and liabilities of Smarty Ltd were recorded atamounts equal to their fair values at the acquisition date, exceptfor some assets detailed below.
Remaining useful life
Cost
Carrying amount
Fair value
$
$
$
Plant
5 years
180,000
90,000
120,000
Computer equipment
5 years
90,000
40,000
60,000
Required:
Prepare the acquisition analysis at 1 July 2017.
Prepare the consolidation worksheet entries for Panda Ltdâs groupat 1 July 2017.
Prepare the consolidation worksheet entries for Panda Ltdâs groupat 30 June 2018.
Question 1
Max. marks allocated
Acquisition analysis
3
Consolidation entries at 1 July 2017
6
Consolidation entries at 30 June 2018
10
Presentation
1
Total
20
Question 2 [35 marks]
Topic 2: Consolidation: Intra-group transactions
On 1 July 2015, Ping Pong Ltd acquired all the issued shares ofSing Song Ltd. At the date of acquisition, the shareholdersâ equityof Sing Song Ltd consisted of share capital $120,000; generalreserve $25,000 and retained earnings $55,000. The identifiable netassets of Sing Song Ltd were recorded at amounts equal to theirfair values, except for the following assets:
Carrying amount
Fair value
$
$
Land
100,000
130,000
Inventories
78,500
86,100
Machinery (cost $86,000)
52,000
56,000
Vehicles (cost $58,000)
47,000
53,000
The assets of Sing Song Ltd at acquisition date includedgoodwill recorded at $15,000 arising from a business combinationtransaction in 2011. As at the date of acquisition, the vehiclesand machinery were expected to have a further useful life of 6 and8 years respectively, with benefits to be received evenly overthose periods. Inventories on hand on 1 July 2015 was all sold by31 January 2016. The land owned at 1 July 2015 was sold inSeptember 2016 for $150,000. The machinery on hand at 1 July 2015was sold on 1 January 2018 for $38,000.
Adjustments for the differences between carrying amount and fairvalues of assets and liabilities on hand at acquisition date arerecognised on consolidation. When assets are sold or derecognised,any related valuation reserves are transferred to retainedearnings.
At 1 July 2015, Sing Song Ltd owned but had not recorded aninternally generated brand name, an identifiable asset included aspart of the business combination transaction. This brand name wasconsidered by Ping Pong Ltd to have a fair value of $29,000 and anindefinite useful life. An impairment test conducted with respectto the brand name on 30 June 2018 concluded that its recoverableamount at that date was $2,000 less than its carrying amount.
In June 2017, Sing Song Ltd paid a share dividend worth $20,000from the general reserve on hand at 1 July 2015.
The trial balances of both companies at 30 June 2018 showed thefollowing balances:
Ping Pong Ltd
Sing Song Ltd
Dr ($)
Cr ($)
Dr ($)
Cr ($)
Sales revenue
450,000
320,000
Dividend revenue
17,000
-
Other income
11,400
17,000
Proceeds on sale of equipment
18,000
-
Proceeds on sale of machinery
-
38,000
Cost of sales
210,000
192,550
Income tax expense
30,000
32,000
Depreciation and other expenses
39,000
36,000
Carrying amount of equipment sold
21,000
-
Carrying amount of machinery sold
-
30,500
Dividend paid
10,000
5,000
Dividend declared
20,000
12,000
Transfer to general reserve
10,000
5,000
Share capital
200,000
140,000
General reserve
35,000
10,000
Retained earnings (1 July 2017)
51,300
67,500
Accounts payable
69,500
36,000
Loan payable (due 30 June 2022)
25,000
15,000
Dividend payable
20,000
12,000
Provisions
12,500
9,300
Current tax liability
43,000
34,000
Deferred tax liability
11,800
5,000
Accumulated depreciation-vehicles
16,400
60,000
Accumulated depreciation-equipment
-
34,500
8%Debentures (matures 30 June 2021)
25,000
-
Cash
2,500
1,250
Receivables
27,000
13,000
Inventories
39,700
24,500
Other current assets
15,200
8,200
Deferred tax assets
7,500
3,500
Vehicles
88,000
158,000
Equipment
-
42,000
Land
140,000
180,000
Financial assets
68,000
14,800
Goodwill
28,000
15,000
Shares in Sing Song Ltd
250,000
-
Debentures in Ping Pong Ltd
-
25,000
1,005,900
1,005,900
798,300
798,300
Additional information:
On 1 January 2018, Ping Pong Ltd sold an item of equipment toSing Song Ltd for $18,000. The equipment had a carrying amount atthe date of sale of $21,000. Both companies depreciate equipment at20% on a straight line basis.
On 1 May 2017, Sing Song Ltd sold a machine to Ping Pong Ltd for$7,800. The machine had a carrying amount of $7,000 at the date ofsale. Ping Pong Ltd recorded the machine as inventories. Theinventories item was sold to an external party in November 2017 for$8,200.
All interests on the 8% debentures has been paid and brought toaccount in the records of both companies.
During the 2017-2018 financial year, Ping Pong Ltd sold inventoriesto Sing Song Ltd for $75,000. The cost of these inventories to SingSong Ltd was $70,000. Of these inventories, 25% is still on hand at30 June 2018.
The transfer to the general reserve recorded by Sing Song Ltd inthe current year was from retained earnings recorded at 1 July2015.
The tax rate is 30%.
Required:
Prepare an acquisition analysis.
Prepare the consolidation worksheet entries necessary to preparethe consolidated financial statements for the year ending 30 June2018 for the group comprising Ping Pong Ltd and Sing Song Ltd.
Note: you are not required to prepare the consolidationworksheet and the consolidated financial statements.
marty Ltd was as follows.
$ | |
Share capital | 100,000 |
Retained earnings | 175,000 |
Total | 275,000 |
All the assets and liabilities of Smarty Ltd were recorded atamounts equal to their fair values at the acquisition date, exceptfor some assets detailed below.
Remaining useful life | Cost | Carrying amount | Fair value | |
$ | $ | $ | ||
Plant | 5 years | 180,000 | 90,000 | 120,000 |
Computer equipment | 5 years | 90,000 | 40,000 | 60,000 |
Required:
Prepare the acquisition analysis at 1 July 2017.
Prepare the consolidation worksheet entries for Panda Ltdâsgroup at 1 July 2017.
Prepare the consolidation worksheet entries for Panda Ltdâsgroup at 30 June 2018.
Question 1 | Max. marks allocated |
Acquisition analysis | 3 |
Consolidation entries at 1 July 2017 | 6 |
Consolidation entries at 30 June 2018 | 10 |
Presentation | 1 |
Total | 20 |
Question 2 [35 marks]
Topic 2: Consolidation: Intra-grouptransactions
On 1 July 2015, Ping Pong Ltd acquired all the issued shares ofSing Song Ltd. At the date of acquisition, the shareholdersâ equityof Sing Song Ltd consisted of share capital $120,000; generalreserve $25,000 and retained earnings $55,000. The identifiable netassets of Sing Song Ltd were recorded at amounts equal to theirfair values, except for the following assets:
Carrying amount | Fair value | |
$ | $ | |
Land | 100,000 | 130,000 |
Inventories | 78,500 | 86,100 |
Machinery (cost $86,000) | 52,000 | 56,000 |
Vehicles (cost $58,000) | 47,000 | 53,000 |
The assets of Sing Song Ltd at acquisition date includedgoodwill recorded at $15,000 arising from a business combinationtransaction in 2011. As at the date of acquisition, the vehiclesand machinery were expected to have a further useful life of 6 and8 years respectively, with benefits to be received evenly overthose periods. Inventories on hand on 1 July 2015 was all sold by31 January 2016. The land owned at 1 July 2015 was sold inSeptember 2016 for $150,000. The machinery on hand at 1 July 2015was sold on 1 January 2018 for $38,000.
Adjustments for the differences between carrying amount and fairvalues of assets and liabilities on hand at acquisition date arerecognised on consolidation. When assets are sold or derecognised,any related valuation reserves are transferred to retainedearnings.
At 1 July 2015, Sing Song Ltd owned but had not recorded aninternally generated brand name, an identifiable asset included aspart of the business combination transaction. This brand name wasconsidered by Ping Pong Ltd to have a fair value of $29,000 and anindefinite useful life. An impairment test conducted with respectto the brand name on 30 June 2018 concluded that its recoverableamount at that date was $2,000 less than its carrying amount.
In June 2017, Sing Song Ltd paid a share dividend worth $20,000from the general reserve on hand at 1 July 2015.
The trial balances of both companies at 30 June 2018 showed thefollowing balances:
Ping Pong Ltd | Sing Song Ltd | |||
Dr ($) | Cr ($) | Dr ($) | Cr ($) | |
Sales revenue | 450,000 | 320,000 | ||
Dividend revenue | 17,000 | - | ||
Other income | 11,400 | 17,000 | ||
Proceeds on sale of equipment | 18,000 | - | ||
Proceeds on sale of machinery | - | 38,000 | ||
Cost of sales | 210,000 | 192,550 | ||
Income tax expense | 30,000 | 32,000 | ||
Depreciation and other expenses | 39,000 | 36,000 | ||
Carrying amount of equipment sold | 21,000 | - | ||
Carrying amount of machinery sold | - | 30,500 | ||
Dividend paid | 10,000 | 5,000 | ||
Dividend declared | 20,000 | 12,000 | ||
Transfer to general reserve | 10,000 | 5,000 | ||
Share capital | 200,000 | 140,000 | ||
General reserve | 35,000 | 10,000 | ||
Retained earnings (1 July 2017) | 51,300 | 67,500 | ||
Accounts payable | 69,500 | 36,000 | ||
Loan payable (due 30 June 2022) | 25,000 | 15,000 | ||
Dividend payable | 20,000 | 12,000 | ||
Provisions | 12,500 | 9,300 | ||
Current tax liability | 43,000 | 34,000 | ||
Deferred tax liability | 11,800 | 5,000 | ||
Accumulated depreciation-vehicles | 16,400 | 60,000 | ||
Accumulated depreciation-equipment | - | 34,500 | ||
8%Debentures (matures 30 June 2021) | 25,000 | - | ||
Cash | 2,500 | 1,250 | ||
Receivables | 27,000 | 13,000 | ||
Inventories | 39,700 | 24,500 | ||
Other current assets | 15,200 | 8,200 | ||
Deferred tax assets | 7,500 | 3,500 | ||
Vehicles | 88,000 | 158,000 | ||
Equipment | - | 42,000 | ||
Land | 140,000 | 180,000 | ||
Financial assets | 68,000 | 14,800 | ||
Goodwill | 28,000 | 15,000 | ||
Shares in Sing Song Ltd | 250,000 | - | ||
Debentures in Ping Pong Ltd | - | 25,000 | ||
1,005,900 | 1,005,900 | 798,300 | 798,300 | |
Additional information:
On 1 January 2018, Ping Pong Ltd sold an item of equipment toSing Song Ltd for $18,000. The equipment had a carrying amount atthe date of sale of $21,000. Both companies depreciate equipment at20% on a straight line basis.
On 1 May 2017, Sing Song Ltd sold a machine to Ping Pong Ltd for$7,800. The machine had a carrying amount of $7,000 at the date ofsale. Ping Pong Ltd recorded the machine as inventories. Theinventories item was sold to an external party in November 2017 for$8,200.
All interests on the 8% debentures has been paid and brought toaccount in the records of both companies.
During the 2017-2018 financial year, Ping Pong Ltd soldinventories to Sing Song Ltd for $75,000. The cost of theseinventories to Sing Song Ltd was $70,000. Of these inventories, 25%is still on hand at 30 June 2018.
The transfer to the general reserve recorded by Sing Song Ltd inthe current year was from retained earnings recorded at 1 July2015.
The tax rate is 30%.
Required:
Prepare an acquisition analysis.
Prepare the consolidation worksheet entries necessary to preparethe consolidated financial statements for the year ending 30 June2018 for the group comprising Ping Pong Ltd and Sing Song Ltd.
Note: you are not required to prepare the consolidationworksheet and the consolidated financial statements.
