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Solutions – Chapter 5
Problem 5-
(a) Cost of 100% investment $226, Carrying amount of Toronto’s net assets = Carrying amount of Toronto’s shareholders’ equity Common shares 10, Retained earnings 80, 90, Acquisition differential – Jan. 1, Year 2 136, Allocated: Inventory 2, Buildings 30, Trademarks 60, Long-term debt (20,000) 72, Balance – goodwill $64,
Balance Balance Jan. 1 Changes Dec. 31 Year 2 Year 2 Year 3 Year 4 Year 4 Inventory 2,000 -2,000 0 Buildings 30,000 -3,000 -3,000 -3,000 21, Trademarks 60,000 -4,000 -4,000 -4,000 48, Long-term debt (20,000) 4,000 4,000 4,000 (8,000) Goodwill 64,000 0 0 -41,000 23, 136,000 -5,000 -3,000 -44,000 84,
(b) Cost of 70% investment $147, Implied value of 100% 210,
The implied value of $210,000 is $16,000 less than in part a). Goodwill will decreaseby $16, from $64,000 to $48,000 at the date of acquisition and goodwill impairment loss in Year 4 will also decrease by $16,000 from $41,000 to $25,000.
Problem 5-
(a)
Cost of 80% investment $240, Implied cost of 100% investment $300, Carrying amount of Wilson’s net assets Common shares $175, Retained earnings 42, 217, Acquisition differential – Jan. 1, Year 6 83, Allocated: Inventory 8, Equipment 6, Patents 40, Long-term debt 20,000 74, Balance – goodwill $9,
Balance Balance Dec. 3 Changes Dec. 31 Year 3 Yr4,5&6 Year 7 Year 7 Inventory $8,000 $(8,000) Equipment (6 years) 6,000 (3,000) $(1,000) $2, Patents (8 years) 40,000 (15,000) (5,000) 20, Long-term debt (5 years) 20,000 (12,000) (4,000) 4, Goodwill 9,000 (3,000) 0,000 6, $83,000 $(41,000) $(10,000) $32,
b) Mueller’s profit $62, Less: dividends from Wilson (12,000) 50, Wilson’s profit $26, Less: changes to acquisition differential (10,000) 16, Mueller’s share (80%) 12,
Current assets (3,300 + 2,700) 6, Total assets $43,
Ordinary shares $10, Retained earnings 10, Long-term liabilities (8,000 + 5,500) 13,
Current liabilities (5,900 + 3,900) 9, Total equity & liabilities $43,
(b) The separate entity statements for the subsidiary, Montreal, and the consolidated statements would not change. For the parent’s separate statements the accounts would change:
- Equity method income of $800 would be replaced by dividend income of $500. In turn, profit would change from $2,300 to $2,000.
- Investment in Montreal would change from $7,000 to the acquisition cost of $6,700. Retained earnings would change from $10,600 to $10,300 due to the change in profit.
Problem 5-
(a) Popa Inc.
Consolidated Statement of Profit For the Year Ended, December 31, Year 1 Sales (13,000 + 4,400) $17, Cost of goods sold (10,100 + 2,900) -13, Other expense (1,400 + 700) -2, Profit $2, Attributable to: Shareholders of Popa $2, Non-controlling interests (20% x 800) 160 $2,
Popa Inc. Consolidated Statement of Financial Position December 31, Year 1
- Consolidated profit attributable to Mueller’s shareholders $62, - Mueller’s retained earnings $250, - Wilson’s retained earnings 110, - Wilson’s retained earnings, date of acquisition 42, - Change since acquisition 68, - Adjusted change since acquisition 17, - Mueller’s share (80%) 13, - Consolidated retained earnings $263, - Wilson’s common shares $175,
- Wilson’s retained earnings 110, - Undepleted acquisition differential 32, - $317, - NCI’s share (20%) $63,
- Problem 5- - For the Year Ended, December 31, Year Consolidated Statement of Profit
- Sales (13,000 + 4,400) $17,
- Cost of goods sold(10,100 + 2,900) -13,
- Other expense(1,400 + 700) -2,
- Profit $2,
- Shareholders of Popa $2, Attributable to:
- Non-controlling interests - $2, - December 31, Year Consolidated Statement of Financial Position
- Land (5,000 + 1,500) $6,
- Plant and equipment, net (19,200 + 12,200) 31,
- Land (5,000 + 1,500) $6,
- Plant and equipment, net (19,200 + 12,200) 31,
- Current assets (4,540 + 2,700) 7,
- Ordinary shares $10,
- Retained earnings 10,
- Non-controlling interest (20% x [2,400 + 4,600]) 1,
- Long-term liabilities (8,000 + 5,500) 13,
- Current liabilities (5,900 + 3,900) 9,
- Total equity & liabilities $45,
