Exam 6: Subsequent-Year Consolidations: General Approach

Lobes Co.owns 65% of Banes Limited.During 20X5,Banes sold equipment to Lobes for a gain of $150,000,recognizing a gain on sale (before taxes)of $75,000.Lobes has determined that the equipment had a useful life of 10 years,and took a full year's deprecation in 20X5.On April 1,20X8,Lobes sold the equipment to an unaffiliated company for $110,000.Ignore any taxes. Required: Prepare the appropriate consolidation adjustments relating to the equipment for each year ending December 31,20X5 to 20X8.

Chandler Ltd.owns 65% of Stork Co.and accounts for its investment using the cost method.During 20X3,Chandler sold its only land holding to Stork for a $25,000 profit.At the end of 20X4,Stork showed the land on its single-entity financial statement at a value of $100,000.What balance should Chandler show on its consolidated statement of financial position for the land?

Fort owns 70% of the outstanding common shares of Sort.On December 30,20X3,Sort sold some equipment to Fort for $100,000.The equipment had been purchased by Sort for $120,000 in 20X2,had accumulated amortization of $30,000 and a six-year remaining life at December 31,20X3.Both companies record a full year of amortization expense for assets purchased in the first half of the year and no amortization on assets purchased in the last half of the year.Equipment for Fort and Sort on their separate-entity balance sheets at December 31,20X3 was as follows: What is the non-controlling interest's share of the consolidation adjustment on the balance sheet at December 31,20X3?

Grayson Ltd.acquired 60% of the outstanding common shares of Goldberg Ltd.for $480,000.At the date of acquisition,Goldberg's shareholders' equity was $625,000.The goodwill at 100% has been determined to be $90,000 under the entity method.What is the amount of the non-controlling interest that should be reported under the entity method?

Dixon Ltd.owns 60% of the common shares of Kelly Co.Kelly sold a machine with a book value of $350,000 to Dixon for $410,000.When Dixon prepares its consolidated financial statements,it makes an adjustment to reduce the amortization.What is the effect of this adjustment?

Arnez Ltd.acquired 70% of the outstanding common shares of Bedard Ltd.At the acquisition date,Bedard's net identifiable assets had a carrying value of $825,000 and a fair market value of $1,000,000.Arnez paid $910,000 for the acquisition.Under the entity method,what amount should be reported for the non-controlling interest on the consolidated statement of financial position?

Tooker Co.acquired 80% of the outstanding common shares of Vu Ltd.There were no fair value increments or goodwill that arose with the purchase.During 20X1,Tooker sold $7,000 of inventory to Vu for a gross profit of 40%.At the end of 20X1,$3,000 of the inventory is still in Vu's inventory.On their single-entity income statements for 20X1,Tooker and Vu reported net income of $4,200 and $3,100 respectively.What is the non-controlling interest's share of consolidated net income at the end of 20X1?

On September 1,20X5,Hot Limited decided to buy 80% of the shares outstanding of Cold Inc.for $850,000.Hot paid for this acquisition by using cash of $500,000 and marketable securities for the remaining amount.The balances showing on the statement of financial position for the two companies at August 31,20X5 are as follows: After a review of the financial assets and liabilities,Hot determines that some of the assets of Cold have fair values different from their carrying values.These items are listed below: • Inventory has a fair value of $130,000 • The building has a fair value of $1,090,000.The remaining useful life of the building is 20 years.The accumulated depreciation on the building at the time of acquisition was $50,000. • A trademark has a fair value of $300,000.The trademark is estimated to have a useful life of 15 years. • The bonds payable have a fair value of $720,000 and are due in August 31,20X9. During the 20X9 fiscal year,the following events occurred: 1.Hot sold merchandise to Cold for $200,000.Profit margin on these sales is 30%.Cold still has inventory on hand of $70,000.Included in the opening inventory of Cold for 20X9 is merchandise purchased from Hot in 20X8 for $150,000.The gross profit margin on these sales was 30% 2.Cold sold merchandise to Hot for $500,000.The gross margin on these sales was 40%.At the end of the year,$180,000 of this was still in Hot's inventory.Included in the opening inventory of Hot for 20X9 was merchandise purchased from Hot in 20X8 for $230,000.The profit margin on these sales had been 30%. 3.During 20X9,Cold sold to Hot equipment resulting in a gain to Cold of $75,000.At the time,the original cost and accumulated depreciation to date for the equipment on the Cold's books was: $510,000 and 160,000.The remaining useful life for this equipment is 15 years.Depreciation is fully recorded in the year of purchase and no depreciation is recorded in the year of disposal by both companies. 4.During 20X9,Cold paid management fees of $450,000 to Hot. 5.During 20X9,Cold paid dividends of $400,000 and Hot paid dividends of $600,000 Statements of Financial Position As at August 31,20X9 Statements of Comprehensive Income For the year ended August 31,20X9 Statements of Changes in Equity - partial section - Retained Earnings For the year ended August 31,20X9 Required: Calculate the balance in the Investment in Cold account as at August 31,20X9,if the company accounted for this subsidiary using the equity basis. Calculate the balance in the Investment in Cold account as at August 31,20X9,if the company accounted for Cold as an associate using the proprietary theory basis for the equity method. Explain the difference between the two balances. Goodwill is determined using the parent-company extension approach.

Fox owns 60% of the outstanding common shares of Sox and uses the cost method to account for its investment.On January 1,20X4,Fox sold a machine to Sox for $300,000.The equipment had a net book value of $150,000 and a remaining useful life of 5 years at the time of the intercompany sale.Both companies record a full year of amortization expense in the year of purchase and no amortization in the year of sale.The net book value of the equipment on the separate-entity financial statements of Fox and Sox at December 31,20X6 were $1,000,000 and $600,000,respectively.Ignoring income taxes,what is the non-controlling interest's share of the consolidation adjustment(s)on the income statement for the year ended December 31,20X6?

Mallard Ltd.acquired 75% of the outstanding common shares of Teal Ltd.at December 31,20X1 for $900,000.Mallard has recorded its investment using the cost method.At the end of 20X7,Mallard still had $40,000 of goods purchased from Teal in its inventory and Teal had $50,000 of goods purchased from Mallard in its inventory.Both companies had gross margins of 40% in their sales of goods to each other and both companies sold these goods in 20X8.What adjustment should be made for Mallard's 20X8 consolidated financial statements with respect to the goods purchased from Teal that were still in Mallard's opening inventory?

Bowen Limited purchased 60% of Sloch Co.when Sloch's reported retained earnings of $330,000.Bowen also owns 80% in Zeek Limited,which was purchased when Zeek reported retained earnings of $575,000.For each acquisition,the purchase price was equal to the fair value of the identifiable net assets which was the same as the carrying value of their carrying values. An analysis of the changes in retained earnings of the three companies during the year 20X7 gives the following results: Sloch sells product to Bowen that is used in Bowen's production.Bowen will then sell part of its products to Zeek. Intercompany profits included on sales from Sloch to Bowen were $25,000 included in January 1,20X7 inventory and $40,000 included in December 31,20X7 inventory. Intercompany profits included on sales from Bowen to Zeek were $31,000 included in January 1,20X7 inventory and $35,000 included in December 31,20X7 inventory. During 20X5,Bowen sold a building to Zeek for a gain of $300,000.The building had a remaining life of 25 years.During 20X7,Sloch sold a building to Bowen for a gain of $75,000.This building has a useful remaining life of 15 years.Full depreciation has been recorded in the year of acquisition by each company and no depreciation is recorded in the year of sale. Required: Calculate the consolidated net income for the year ended December 31,20X6.Determine the allocation between the NCI and owners of the parent.

Farm owns 70% of the common shares of XL and accounts for its investment using the cost method.In 20X6,Farm purchased equipment from XL for $300,000.The equipment had been purchased by XL for $420,000 in 20X2,had accumulated depreciation of $168,000 and a six-year remaining life at December 31,20X5.Both companies record a full year of depreciation expense in the year of the purchase and no depreciation in the year of a sale. Required: Indicate the consolidation adjustments to the following accounts for the years ended 20X6,20X8 and 20X11: • depreciation expense • net book value of equipment • non-controlling interest on statement of comprehensive income • non-controlling interest on statement of financial position • retained earnings,end of year

On September 1,20X5,Hot Limited decided to buy 80% of the shares outstanding of Cold Inc.for $850,000.Hot paid for this acquisition by using cash of $500,000 and marketable securities for the remaining amount.The balances showing on the statement of financial position for the two companies at August 31,20X5 are as follows: After a review of the financial assets and liabilities,Hot determines that some of the assets of Cold have fair values different from their carrying values.These items are listed below: • Inventory has a fair value of $130,000 • The building has a fair value of $1,090,000.The remaining useful life of the building is 20 years.The accumulated depreciation on the building at the time of acquisition was $50,000. • A trademark has a fair value of $300,000.The trademark is estimated to have a useful life of 15 years. • The bonds payable have a fair value of $720,000 and are due in August 31,20X9. During the 20X9 fiscal year,the following events occurred: 1.Hot sold merchandise to Cold for $200,000.Profit margin on these sales is 30%.Cold still has inventory on hand of $70,000.Included in the opening inventory of Cold for 20X9 is merchandise purchased from Hot in 20X8 for $150,000.The gross profit margin on these sales was 30% 2.Cold sold merchandise to Hot for $500,000.The gross margin on these sales was 40%.At the end of the year,$180,000 of this was still in Hot's inventory.Included in the opening inventory of Hot for 20X9 was merchandise purchased from Hot in 20X8 for $230,000.The profit margin on these sales had been 30%. 3.During 20X9,Cold sold to Hot equipment resulting in a gain to Cold of $75,000.At the time,the original cost and accumulated depreciation to date for the equipment on the Cold's books was: $510,000 and 160,000.The remaining useful life for this equipment is 15 years.Depreciation is fully recorded in the year of purchase and no depreciation is recorded in the year of disposal by both companies. 4.During 20X9,Cold paid management fees of $450,000 to Hot. 5.During 20X9,Cold paid dividends of $400,000 and Hot paid dividends of $600,000 Statements of Financial Position As at August 31,20X9 Statements of Comprehensive Income For the year ended August 31,20X9 Statements of Changes in Equity - partial section - Retained Earnings For the year ended August 31,20X9 Required: Prepare the consolidated statement of comprehensive income and the consolidated statement of changes in equity - partial section for retained earnings for Hot as at August 31,20X9. Calculate the non-controlling interest's portion of net earnings for the year.Calculate the opening retained earnings balance as at August 31,20X8. The company uses the parent company extension approach to determining goodwill.

Cooper Ltd.acquired 70% of the common shares of Effy Ltd.at January 2,20X1.At December 31,20X3,Effy sold a machine to Cooper for $180,000.Effy had purchased the machine a few years ago for $250,000.At the time of sale to Cooper,the machine had a carrying value of $150,000 and a remaining useful life of 6 years.Both companies do not claim amortization for assets purchased in the second half of the year.For Cooper's December 31,20X3 single-entry financial statements,what net book value should be shown for the machine?

Tooker Co.acquired 80% of the outstanding common shares of Vu Ltd.There were no fair value increments or goodwill that arose with the purchase.During 20X1,Tooker sold $7,000 of inventory to Vu for a gross profit of 40%.At the end of 20X1,$3,000 of the inventory is still in Vu's inventory.On their single-entity income statements for 20X1,Tooker and Vu reported the following: Vu sold all the goods from Tooker that were in its opening inventory.There were no sales between Tooker and Vu in 20X2.What is the non-controlling interest's share of consolidated net income at the end of 20X2?

Fort owns 70% of the outstanding common shares of Sort.On December 30,20X3,Sort sold some equipment to Fort for $100,000.The equipment had been purchased by Sort for $120,000 in 20X2,had accumulated amortization of $30,000 and a six-year remaining life at December 31,20X3.Both companies record a full year of amortization expense for assets purchased in the first half of the year and no amortization on assets purchased in the last half of the year.Equipment for Fort and Sort on their separate-entity balance sheets at December 31,20X3 was as follows: On December 31,20X6,Fort sold the equipment to an outside company for $65,000.What is the gain on sale of equipment to be reported on the consolidated income statement for the year ended December 31,20X6?