Consolidation: Principles, accounting requirements, intra-group transactions and non-controlling interests

ACC567 Financial Accounting 2 Question 1 – Consolidation: Principles, accounting requirements, intra-group transactions and non-controlling interests On 1 July 2015, Sweets Ltd purchased 80% of the issued shares of Savoury Ltd for $890,000. At the date of acquisition, the equity of Savoury Ltd consisted of share capital and retained earnings of $500,000 and $425,000 respectively. At the date of acquisition, all assets of Savoury Ltd were recorded at fair value, except for inventory, that had a fair value which was $10,000 higher than its carrying amount. All of this inventory was on-sold to external parties by 30 June 2016. As at 30 June 2017, the following financial statements have been extracted from the financial records of Sweets Ltd and Savoury Ltd: Sweets Ltd…

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On December 31, 2011, Pen Corporation purchased 80 percent of the stock of Sut Company at book

On December 31, 2011, Pen Corporation purchased 80 percent of the stock of Sut Company at book value. The data reported on their separate balance sheets immediately after the acquisition follow. At December 31, 2011, Pen Corporation owes Sut $10,000 on accounts payable. (All amounts are in thousands.) Pen Sut Assets Cash 64 36 Accounts receivable-net 90 68 Inventories 286 112 Land 400 Building-net 760 350 Net Income 1600 566 Liabilities and Stockholders’ Equity Accounts payable 80 66 Common stock, $20 par 920 300 Retained earnings 600 200 1600 566   REQUIRED 1. Prepare a consolidated balance sheet for Pen Corporation and Subsidiary at December 31, 2011. 2. Compute consolidated net income for 2012 assuming that Pen Corporation reported separate income…

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US Bright produces a list of the activities performed at Cravings for cakes

Assessment Task (Activity Based Costing) US Bright produces a list of the activities performed at Cravings for cakes and their annual costs. In addition, Bright identifies an activity driver for each activity and the annual quantity of each activity driver. A partial list of activity costs and quantities of activity drivers is shown below: Cravings for Cakes list of Activities Activity Activity Cost ($) Activity Driver Annual Quantity of Activity driver Prepare Annual Accounts 5000 None Available Process receivables 15000 No. of Invoices 5000 Invoices Process payables 25000 No. of purchase orders 2500 Purchase orders Program production 28000 No. of production schedules 1000 schedules Process Sales order 40000 No. of sales orders 4000 sales orders Dispatch sales order 30000 No. of…

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The Lotus Corporation signs a lease agreement dated January 1, 2010

The Lotus Corporation signs a lease agreement dated January 1, 2010 that provides for it to lease equipment from Dragon Company beginning January 1, 2010. The lease terms, provisions, and related events are as follows: The lease is non-cancellable and has a term of five years. The annual rentals are $83,222.92, payable at the end of each year, and provide Dragon with a 12% annual rate of return on its net investment. The Lotus Corporation agrees to pay all executory costs at the end of each year. In 2010, these were insurance, $3,760; property taxes, $5,440. In 2011: insurance, $3,100; property taxes, $5,330. There is no renewal or bargain purchase option. Lotus estimates that the equipment has a fair value of…

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The Sax Company signs a lease agreement dated January 1, 2010 that provides for it to lease computers

The Sax Company signs a lease agreement dated January 1, 2010 that provides for it to lease computers from the Appleton Company beginning January 1, 2010. The lease terms, provisions, and related events are as follows: The lease term is five years. The lease is noncancelable and requires equal rental payments to be made at the end of each year. The computers have an estimated life of five years, a fair value of $300,000, and a zero estimated residual value. Sax Company agrees to pay all executory costs. The lease contains no renewal or bargain purchase option. The annual payment is set by Appleton at $83,222.92 to earn a rate of return of 12% on its net investment. The Sax Company…

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The Timmer Company signs a lease agreement dated January 1, 2007

The Timmer Company signs a lease agreement dated January 1, 2007 that provides for it to lease equipment from Landau Company beginning January 1, 2007. The lease terms, provisions, and related events are as follows: The lease is non-cancellable and has a term of five years. The annual rentals are $83,222.92, payable at the end of each year, and provide Landau with a 12% annual rate of return on its net investment. The Timmer Company agrees to pay all executor costs at the end of each year. In 2007 these were: insurance $3,760; property taxes, $5,440. In 2008: insurance, $3,100; property taxes, $5,330. There is no renewal or bargain purchase option. Timmer estimates that the equipment has an economic life of…

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On January 1, 2014, Alison, Inc., paid $76,800 for a 40 percent interest in Holister

On January 1, 2014, Alison, Inc., paid $76,800 for a 40 percent interest in Holister Corporation’s common stock. This investee had assets with a book value of $224,000 and liabilities of $104,000. A patent held by Holister having a $8,100 book value was actually worth $53,100. This patent had a six-year remaining life. Any further excess cost associated with this acquisition was attributed to goodwill. During 2014, Holister earned income of $38,000 and declared and paid dividends of $13,000. In 2015, it had income of $61,700 and dividends of $18,000. During 2015, the fair value of Allison’s investment in Holister had risen from $86,200 to $92,280.   Assuming Alison uses the equity method, what balance should appear in the Investment in…

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On January 1, 2017, Alison, Inc., paid $60,000 for a 40 percent interest in Holister Corporation’s common stock

On January 1, 2017, Alison, Inc., paid $60,000 for a 40 percent interest in Holister Corporation’s common stock. This investee had assets with a book value of $200,000 and liabilities of $75,000. A patent held by Holister having a $5,000 book value was actually worth $20,000. This patent had a six-year remaining life. Any further excess cost associated with this acquisition was attributed to goodwill. During 2017, Holister earned income of $30,000 and declared and paid dividends of $10,000. In 2018, it had income of $50,000 and dividends of $15,000. During 2018, the fair value of Allison’s investment in Holister had risen from $68,000 to $75,000. a.Assuming Alison uses the equity method, what balance should appear in the Investment in Holister…

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FreshPak Corporation manufactures two types of cardboard boxes used in shipping canned food

FreshPak Corporation manufactures two types of cardboard boxes used in shipping canned food, fruit, and vegetables. The canned food box (type C) and the perishable food box (type P) have the following material and labor requirements. Type of Box C                P Direct material required per 100 boxes: Paperboard ($.20 per pound) …………………………………………………………………………….. 30 pounds     70 pounds Corrugating medium ($.10 per pound) ………………………………………………………………… 20 pounds    30 pounds Direct labor required per 100 boxes ($12.00 per hour) …………………………………………. .25 hour            .50 hour The following manufacturing-overhead costs are anticipated for the next year. The predetermined overhead rate is based on a production volume of 495,000 units for each type of box. Manufacturing overhead is applied on the basis of direct-labor hours. Indirect material ………………………………………………………………………………………………………………………….. $ 10,500 Indirect labor…

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Joe Murphy retired a few years ago at the age of 48, having built up a substantial retirement portfolio

Information for management   Joe Murphy retired a few years ago at the age of 48, having built up a substantial retirement portfolio through a range of entrepreneurial activities. He moved to the Snowy Mountains to follow his dream of a peaceful mountain life. However, after a few months, Murphy became restless and opened a ski equipment store. This single store soon grew into a chain of four outlets spread from the Snowy Mountains to the Victorian Alps. As Murphy put it, ‘I can’t believe how fast we’ve expanded. It’s basically been uncontrolled growth—growth that has occurred in spite of what we’ve done’. Although business was profitable, the chain did have its share of problems. Sales tended to be seasonal, with…

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Supernova Company had the following summarized balance sheet

Supernova Company had the following summarized balance sheet on December 31 of the current year: ​ Assets Accounts receivable $ 350,000 Inventory 450,000 Property and plant (net) 600,000 Total $1,400,000 ​ ​​ Liabilities and Equity Notes payable $ 600,000 Common stock, $5 par 300,000 Paid-in capital in excess of par 400,000 Retained earnings 100,000 Total $1,400,000 ​ The fair value of the inventory and property and plant is $600,000 and $850,000, respectively. ​ Assume that Redstar Corporation exchanges 75,000 of its $3 par value shares of common stock, when the fair price is $20 per share, for 100% of the common stock of Supernova Company. ​ Required: ​What journal entries will Redstar Corporation record for the investment in Supernova and issuance…

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On January 1, 16, Brown Inc. acquired Larson Company’s net assets in exchange for Brown’s common stock

On January 1, 16, Brown Inc. acquired Larson Company’s net assets in exchange for Brown’s common stock with a par value of $100,000 and a fair value of $800,000. Brown also paid $10,000 in direct acquisition costs and $15,000 in stock issuance costs.

On this date, Larson’s condensed account balances showed the following:

	Book Value	Fair Value
Current Assets	$280,000	$370,000
Plant and Equipment	440,000	480,000
Accumulated Depreciation	(100,000)
Intangibles – Patents	80,000	120,000
Current Liabilities	(140,000)	(140,000)
Long-Term Debt	(100,000)	(110,000)
Common Stock	(200,000)
Other Paid-in Capital	(120,000)
Retained Earnings	(140,000)

 

Required: Record Brown’s purchase of Larson Company’s net assets.