Exam 8: Consolidated Cash Flows and Changes in Ownership

If the shareholders' equity allocated to the subsidiary's preference shares amounts to $240,000 and the parent company acquires 60% of the subsidiary's preference shares at a cost of $150,000, how much will the non-controlling interest in the preferred shares amount to after the purchase by the parent?

X owns 70% of Y, which in turn owns 25% of Z. X, also owns 20% of Z. Which of the following statements is correct?

The amount of common shares appearing on the December 31, 2018 consolidated balance sheet would be:

What would be the amount of the gain or loss on the sale of the 14,000 shares?

The trial balances of Ash Inc. and its subsidiary Cinder Corp. on December 31, 2018 are shown below: Ash Cinder Imventory \ 160,000 \ 100,000 Plant and Equipment (net) \ 2,700,000 \ 700,000 Dividends Declared \ 200,000 \ 100,000 Investment in Cinder \ 700,000 - Cost of Goods Sold \ 650,000 \ 90,000 Other Expenses \ 50,000 \ 10,000 Total Assets \ 4,460,000 \ 1,000,000 Liabilities \ 1,000,000 \ 150,000 Common Shares \ 1,660,000 \ 600,000 Retained Earnings \ 600,000 \ 100,000 Sales and Other Revenue \ 1,200,000 \ 150,000 Total Labilities and Equity \ 4,460,000 \ 1,000,000 Other Information: Ash acquired Cinder in three stages: January 1, 2015: Ash purchased 10,000 shares for \ 100,000. Cinder's Retained Earnings were \ 40,000 on that date. January 1, 2017: Ash purchased 30,000 shares for \ 450,000. Cinder's Retained Earnings were \ 80,000 on that date. December 31, 2018: Ash purchased 20,000 shares for \ 150,000. Cinder's Retained Earnings were \ 100,000 on that date. Cinder was incorporated on January 1, 2013. On that date, Cinder issued 100,000 voting shares. Any difference between the cost and book value is attributable entirely to trademarks, which are to be amortized over 5 years. The company has neither issued nor retired shares since the date of its incorporation. Ash sold depreciable assets to Cinder at a loss of $20,000 on January 1, 2017. These assets had a 10 year remaining life. Intercompany sales of inventory during 2018 amounted to $250,000. Unrealized inventory profits for each company are shown below for 2018. The amounts indicate the amount of profit in each company's inventory. Ash January 1, 2018: \ 10,000 December 31, 2018 \ 20,000 Cinder January 1, 2018: \ 20,000 December 31, 2018 \ 40,000 All inventories on hand at the start of 2018 were sold to outsiders during the year. The net Incomes of both companies are evenly earned throughout the year. Both companies are subject to an effective corporate tax rate of 20%. -Compute consolidated inventory for Ash as at December 31, 2018.

Parrot Company purchased 75% of the outstanding common shares and 50% of the outstanding preference shares of Saltines Inc. on January 1, 2019, on which date the balance sheet and fair values of Saltines' assets and liabilities were as follows: Saltines Inc. Balance Sheet as at December 31, 2018 Book Values Fair Values Cash \ 130,000 \ 130,000 Accounts receivable 120,000 110,000 Inventory 320,000 290,000 Capital assets (net) 720,000 800,000 \ 1,290,000 Current liabilities \ 190,000 \ 190,000 Long-term debt 300,000 300,000 Common shares 300,000 Preterred shares 200,000 Contributed surplus 50,000 Retained earnings 250,000 \ 1,290,000 Parrot paid $460,000 for the common shares and $105,000 for the preference shares. The contributed surplus arose from the issue of the preferred shares at a price higher than their stated value. The preferred shares paid cumulative dividends of 5% of their stated value but dividends for 2017 and 2018 were unpaid. The shares were redeemable, at the option of the issuer, at a premium of 8%. The capital assets of Saltines had a remaining useful life of ten years at January 1, 2009. Any unallocated acquisition differential would be treated as goodwill, which is assessed annually for impairment. Parrot accounts for its interest in Saltines using the cost method and accounts for the non-controlling interest in its consolidated financial statements based on the fair value of the subsidiary, proportionate to the price paid for the controlling interest. Parrot's net income for 2019 was $300,000 and Parrot paid dividends of $150,000 on December 31, 2019. Saltines' net income for 2019 was $120,000 before a loss from discontinued operations of $60,000 (net of tax). Saltines paid dividends of $75,000 in 2019. (Parrot included all dividends received in its income for 2019.) -Calculate the consolidated net income of Parrot and its subsidiary as at December 31, 2019.

Parrot Company purchased 75% of the outstanding common shares and 50% of the outstanding preference shares of Saltines Inc. on January 1, 2019, on which date the balance sheet and fair values of Saltines' assets and liabilities were as follows: Saltines Inc. Balance Sheet as at December 31, 2018 Book Values Fair Values Cash \ 130,000 \ 130,000 Accounts receivable 120,000 110,000 Inventory 320,000 290,000 Capital assets (net) 720,000 800,000 \ 1,290,000 Current liabilities \ 190,000 \ 190,000 Long-term debt 300,000 300,000 Common shares 300,000 Preterred shares 200,000 Contributed surplus 50,000 Retained earnings 250,000 \ 1,290,000 Parrot paid $460,000 for the common shares and $105,000 for the preference shares. The contributed surplus arose from the issue of the preferred shares at a price higher than their stated value. The preferred shares paid cumulative dividends of 5% of their stated value but dividends for 2017 and 2018 were unpaid. The shares were redeemable, at the option of the issuer, at a premium of 8%. The capital assets of Saltines had a remaining useful life of ten years at January 1, 2009. Any unallocated acquisition differential would be treated as goodwill, which is assessed annually for impairment. Parrot accounts for its interest in Saltines using the cost method and accounts for the non-controlling interest in its consolidated financial statements based on the fair value of the subsidiary, proportionate to the price paid for the controlling interest. Parrot's net income for 2019 was $300,000 and Parrot paid dividends of $150,000 on December 31, 2019. Saltines' net income for 2019 was $120,000 before a loss from discontinued operations of $60,000 (net of tax). Saltines paid dividends of $75,000 in 2019. (Parrot included all dividends received in its income for 2019.) -Calculate the amount of the non-controlling interest on the consolidated balance sheet of Parrot and its subsidiary as at December 31, 2019. Consideration for 75\% of common shares \ 460,000 Implied value of 100\% of common shares \ 460,000/0.75) \ 613,333 Net book value at acquisition \ 800,000 Allocated to preferred shares: Stated value \ 200,000 Redemption premium 16,000 Dividends in arrears 20,000 236,000 \ 564,000 Acquisition differential \ 49,333 Allocated to: Accounts receivable (\ 10,000) Inventory (\ 30,000) Capital assets \ 80,000 Goodwill \ 9,333 \ 49,333

What is the balance in the investment in Q account immediately following the sale?

The amount of retained earnings appearing on the December 31, 2018 consolidated balance sheet would be:

What would be the balance in the investment in 123 Inc. accounts after the sale?

Prepare a calculation of Consolidated Retained Earnings at as December 31, 2018. Calculation of Consolidated Retained Earnings:

How much is the non-controlling interest in A Inc.'s Consolidated Net Income for 2018?

The amount appearing under equipment on the December 31, 2018 consolidated balance sheet would be:

What effect (if any) would Hanson's January 1, 2019 purchase have on the company's consolidated cash flows for the year?

What is the carrying value of the trademark after the sale?

Assuming that Hanson had no recorded goodwill prior to January 1, 2018, what would be the amount of goodwill appearing on Hanson' December 31, 2019 Consolidated Balance Sheet?

What would be the amount of the unamortized acquisition differential on December 31, 2018?

What was the amount of acquisition differential amortization for 2019?

a) Prepare a schedule of intercompany profits as at December 31, 2017 for both companies. b) Compute the amount of deferred taxes that should appear on the December 31, 2017 Consolidated Balance Sheet.

Compute the Goodwill on the date of the acquisition.