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Assignment 3

busi 453 assignment 3

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98 views

Assignment 3

busi 453 assignment 3

Uploaded by

zhoudong910105
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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ASSIGNMENT 3

Question 1 (17 marks)


On December 31, Year 1, P Company purchased 90% of the outstanding shares of S Company for
$8,887.50 cash. The statements of financial position of the two companies immediately after the
acquisition transaction appear below.
P Company S Company
Carrying Carrying Fair
Amount Amount Value
Plant and equipment (net) $ 9,600.00 $ 8,300.00 $ 7,000.00
Investment in S company 8,887.50 -
inventory 6,660.00 5,300.00 5,500.00
Accounts receivable 6,150.00 3,300.00 3,300.00
Cash 4,500.00 2,550.00 2,550.00
$ 35,797.50 $ 19,450.00

Ordinary shares $ 12,000.00 $ 4,500.00


Retained earnings 15,410.00 5,950.00
Long-term liabilities 4,500.00 3,500.00 3,500.00
Other current liabilities 2,487.50 3,300.00 3,300.00
Accounts payable 1,400.00 2,200.00 2,200.00
$ 35,797.50 $ 19,450.00

Required:
Prepare a consolidated statement of financial position at the date of acquisition under each of the
following:
a) Identifiable net assets method (parent company extension approach)
b) Fair value entity method.
*****
Question 2 (20 marks)
The balance sheets of Percy Corp. and Saltz Ltd. on December 31, Year 10, are shown below:
Percy Saltz
Cash $ 200,000 $ 4,000
Accounts receivable 50,000 14,000
Inventory 60,000 42,000
Plant 475,000 192,000
Accumulated amortization (125.000) (90,000)
Trademarks -- net - 14,000
$ 660,000 $ 176,000

Current liabilities $ 100,000 $ 20,000


Long-term debt 160,000 40,000
Common shares 220,000 60,000
Retained earnings 180,000 56,000
$ 660,000 $ 176,000

The fair values of the identifiable net assets of Saltz Ltd. on December 31, Year 10, were as
follows:
Cash $ 4,000
Accounts receivable 14,000
Inventory 52,000
Plant 120,000
Trademarks -- net 28,000
218,000
Current liabilities $ 20,000
Long-term debt 38,000 58,000
Net assets $ 160,000

In addition to the assets identified above, Saltz owned a taxi licence in the City of Moose Jaw.
This licence expires in nine years. The licences are selling in the open market at approximately
$45,000. On January 1, Year 11, Percy Corp paid $200,000 in cash to acquire 8,000 (80%) of the
common shares of Saltz Ltd. Saltz’s shares were trading for $22 per share just after the
acquisition by Percy.
Required:
Prepare the consolidated balance sheet on January 1, Year 11. base the value of the noncontrolling
interest on its market value. Show the allocation of the goodwill between the controlling and non-
controlling interest.
*****
Question 3 (13 marks)

Popeye Inc. acquired 400,000 of the 500,000 outstanding common shares of Sailor Limited on July 1,
2013, by issuing 510,000 of its own common shares with an estimated market value of $10 per share
and paying cash of $100,000.

On July 1, 2013, Sailor Limited’s financial statements included common shares of $3,000,000 and
retained earnings of $2,050,000. All the company’s assets and liabilities were fairly valued except for
the following:

Carrying value Fair value


Inventories $1,500,000 $1,750,000
Machinery (at cost) 6,000,000 5,500,000
Accumulated amortization (1,000,000)
Customer list -- 520,000
Long-term debt 1,300,000 1,600,000

The inventories were sold by the end of 2013. The fixed assets and customer list had a remaining useful
life of five years and ten years respectively on the acquisition date. The long-term debt matures on June
30, 2019. Any goodwill arising from the acquisition was tested for impairment each year. Impairment of
$120,000 was determined to have occurred in 2015 and a further impairment of $140,000 in 2016.
Popeye accounts for its investment in Sailor using the equity method and values the non-controlling
interest in the subsidiary at fair value, proportionate to the price paid for the controlling interest.

Required:
(a) Calculate the amount of goodwill that will appear in the consolidated financial statements prepared
immediately after the acquisition by Popeye Inc. of its interest in Sailor Limited.
(b) Prepare an amortization and impairment schedule for the acquisition differential arising from this
business combination. Your schedule should cover the period from the acquisition date to the end
of 2016.

END OF ASSIGNMENT

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