Assignment 1 This assignment should be completed after Chapter 6.

| September 28, 2018

Assignment 1

This
assignment should be completed after Chapter 6.
It contributes 5% toward your final grade. Remember to show all your
work as partial marks may be awarded. For this assignment, ignore income taxes.

Problem 1
(28 marks)

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 following 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.
(6 marks)

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. (10 marks)

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. (12 marks)

Problem 2 (50 marks)

Balance Sheets
December 31, 20X3

Green Tower
Ltd.

Blue Loft
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

Green Tower
Ltd.

Blue Loft
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.

Blue Loft
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 (22 marks)

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)
Calculate
the total amount of dividends declared by March for 20X7. (1
mark)

b)
Calculate
March’s profit for 20X8. (2 marks)

c)
Calculate
the non-controlling interest amounts for Cox’s 20X9

i.
consolidated
income statement, and (3 marks)

ii.
consolidated
balance sheet. (3 marks)

d)
Calculate
the amount of goodwill that should appear on Cox’s 20X9 consolidated balance
sheet. (13 marks)

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