ACCT 4022 Chapter : Acct4022 HW3
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| Financial Information for Case9-1 | |||
| Industy Wide | |||
| Balance Sheets | |||
| Years Ended December 31, 2014and 2015 | |||
| 2015 | 2014 | ||
| Assets | |||
| Current Assets: | |||
| Cash | $ 30,000 | $ 25,000 | |
| Accounts receivable | 110,000 | 90,000 | |
| Inventories | 100,000 | 80,000 | |
| Total Current Assets | 240,000 | 195,000 | |
| Fixed Assets; | |||
| Plant and equipment | 250,000 | 220,000 | |
| Less accumulated depreciation | (100,000) | (65,000) | |
| Land | 50,000 | 50,000 | |
| Total Fixed Assets | 200,000 | 205,000 | |
| Total Assets | $ 440,000 | $ 400,000 | |
| Liabilities and Equity | |||
| Current Liabilities: | |||
| Accounts payable | $ 58,000 | $ 50,000 | |
| Notes payable-due within one year | 50,000 | 50,000 | |
| Accrued liabilities | - | - | |
| Total Current Liabilities | 108,000 | 100,000 | |
| Long Term Liabilities | 32,000 | 20,000 | |
| Total Liabilities | 140,000 | 120,000 | |
| Stockholders' Equity: | |||
| Common stock | 100,000 | 100,000 | |
| Retained earnings | 200,000 | 180,000 | |
| Total Stockholders' Equity | 300,000 | 280,000 | |
| Total Liabilities and Equty | $ 440,000 | $ 400,000 | |
| Industry Wide | |||
| Income Statement | |||
| Years Ended December 31, 2014and 2015 | |||
| Revenues | $ 1,100,000 | $ 1,000,000 | |
| Cost of goods sold | (700,000) | (650,000) | |
| Gross margin | 400,000 | 350,000 | |
| Operating expenses | (275,000) | (255,000) | |
| Operating income | 125,000 | 95,000 | |
| Interest expense | (15,000) | (15,000) | |
| Income before taxes | 110,000 | 80,000 | |
| Income taxes | (44,000) | (32,000) | |
| Net income | $ 66,000 | $ 48,000 | |
| Financial Information for Case9-1 | |||
| Industy Wide | |||
| Balance Sheets | |||
| Years Ended December 31, 2014and 2015 | |||
| 2015 | 2014 | ||
| Assets | |||
| Current Assets: | |||
| Cash | $ 30,000 | $ 25,000 | |
| Accounts receivable | 110,000 | 90,000 | |
| Inventories | 100,000 | 80,000 | |
| Total Current Assets | 240,000 | 195,000 | |
| Fixed Assets; | |||
| Plant and equipment | 250,000 | 220,000 | |
| Less accumulated depreciation | (100,000) | (65,000) | |
| Land | 50,000 | 50,000 | |
| Total Fixed Assets | 200,000 | 205,000 | |
| Total Assets | $ 440,000 | $ 400,000 | |
| Liabilities and Equity | |||
| Current Liabilities: | |||
| Accounts payable | $ 58,000 | $ 50,000 | |
| Notes payable-due within one year | 50,000 | 50,000 | |
| Accrued liabilities | - | - | |
| Total Current Liabilities | 108,000 | 100,000 | |
| Long Term Liabilities | 32,000 | 20,000 | |
| Total Liabilities | 140,000 | 120,000 | |
| Stockholders' Equity: | |||
| Common stock | 100,000 | 100,000 | |
| Retained earnings | 200,000 | 180,000 | |
| Total Stockholders' Equity | 300,000 | 280,000 | |
| Total Liabilities and Equty | $ 440,000 | $ 400,000 | |
| Industry Wide | |||
| Income Statement | |||
| Years Ended December 31, 2014and 2015 | |||
| Revenues | $ 1,100,000 | $ 1,000,000 | |
| Cost of goods sold | (700,000) | (650,000) | |
| Gross margin | 400,000 | 350,000 | |
| Operating expenses | (275,000) | (255,000) | |
| Operating income | 125,000 | 95,000 | |
| Interest expense | (15,000) | (15,000) | |
| Income before taxes | 110,000 | 80,000 | |
| Income taxes | (44,000) | (32,000) | |
| Net income | $ 66,000 | $ 48,000 | |
1. Calculate the current ratio and average collection period foraccounts receivable, inventory turnover, gross margin percentage,and return on equity for 2014 and 2015 for the JordanCorporation.
2. Calculate the current ratio and average collection period foraccounts receivable, inventory turnover, gross margin percentage,and return on equity for the Industry.
3. Compare the performance of the Jordan Corporation between2014 and 2015 and comment on the trend of each ratio.
4. Compare the performance of the Jordan Corporation in 2015 tothe industry averages and comment on each.
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.
