Deck 6: Subsequent-Year Consolidations: General Approach

Question 1

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 net book value of the equipment on the consolidate balance sheet at December 31,20X6?

A)$1,510,000
B)$1,540,000
C)$1,600,000
D)$1,630,000

Answer 1

A

Question 2

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 net effect of these transactions and related amortization on consolidated retained earnings as of December 31,2008?

A)$0
B)$15,000
C)$30,000
D)$150,000

Answer 2

A

Question 3

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?

A)The total decrease in amortization will flow through to ending retained earnings.
B)The total decrease in amortization will flow through to the ending non-controlling interest.
C)60% of the decrease in amortization will flow through to ending retained earnings and 40% will flow through to the ending non-controlling interest.
D)40% of the decrease in amortization will flow through to ending retained earnings and 60% will flow through to the ending non-controlling interest.

Answer 3

C

Question 4

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?

A)$10,500
B)$14,000
C)$15,000
D)$20,000

Question 5

Roslynn Ltd.is a subsidiary of Goodale Co.Roslynn sold a machine to Goodale for a $50,000 gain.Goodale has now sold the machine to an unrelated party for a $20,000 gain.At the time of the sale,$35,000 of the profit on the sale from Roslynn was still unrealized.For consolidation purposes,what is the amount of gain that must be recognized on the sale of the machine?

A)$15,000
B)$20,000
C)$30,000
D)$55,000

Question 6

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?

A)$0
B)$3,000
C)$30,000
D)$36,000

Question 7

Linville Ltd.owns 80% of the outstanding shares of Chance Co.On January 2,20X1,Chance sold a machine to Linville for $270,000.Chance recorded a $45,000 gain on the sale.At the time of the sale,the machine had a remaining useful life of 3 years.Both companies use the straight-line method of amortization.What amount should be shown for amortization on Linville's consolidated statement of comprehensive income at December 31,20X1?

A)$15,000
B)$72,000
C)$75,000
D)$90,000

Question 8

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 Goldberg's fair value increments?

A)$54,000
B)$70,000
C)$85,000
D)$121,000

Question 9

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?

A)$620
B)$840
C)$1,220
D)$1,460

Question 10

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.In 2008,Teal paid out dividends of $100,000.In preparing Mallard's consolidated financial statements,what elimination is required for the dividends?

A)Reduce dividends declared by $75,000;reduce dividend income by $75,000
B)Reduce dividends declared by $100,000;reduce dividend income by $100,000
C)Reduce dividends declared by $100,000;reduce dividend income by $75,000;reduce non-controlling interest by $25,000
D)Reduce dividend declared by $100,000;reduce dividend income by $75,000;increase non-controlling interest by $25,000

Question 11

Pal Co.owns 70% of the outstanding common shares of Sadd Ltd.Sadd sold an asset to Pal at a loss.There is no evidence of impairment in the value of the asset sold to Pal.Which of the following statements about the loss is true?

A)The loss should not be eliminated because this is an upstream sale.
B)The loss should not be eliminated because there is no impairment in the value of the asset.
C)The loss should not be eliminated because Pal does not own 100% of Sadd.
D)The loss should be eliminated.

Question 12

TLC Homecare Ltd.owns 100% of Errand Service for Seniors Ltd.(ESS).At January 2,20X1,TLC bought 12 identical cars for $300,000.It promptly sold 4 of the cars to ESS for $112,000.ESS will amortize the cars over 5 years using the straight-line method.At December 31,20X2,what is the net adjustment that should be made to accumulated depreciation in TLC's consolidated financial statements? Ignore income taxes.

A)$0
B)Reduction of $2,400
C)Reduction of $4,800
D)Reduction of $5,600

Question 13

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?

A)$125,000
B)$150,000
C)$180,000
D)$250,000

Question 14

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?

A)$192,000
B)$250,000
C)$304,000
D)$320,000

Question 15

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?

A)Decrease cost of sales by $40,000;decrease opening retained earnings by $30,000,decrease opening non-controlling interest by $10,000
B)Decrease cost of sales by $40,000;decrease opening retained earnings by $30,000;increase opening non-controlling interest by $10,000
C)Decrease cost of sales by $40,000;decrease sales by $40,000
D)No adjustment is required as the profits have been realized

Question 16

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?

A)$0
B)$75,000
C)$100,000
D)$125,000

Question 17

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.In 20X8,Mallard sold goods to Teal for $260,000 at a gross margin of 30% and Teal sold goods to Mallard for $180,000 at a gross margin of 50%.At the end of 20X8,Mallard still had $60,000 in inventory of goods purchased from Teal and Teal still had $45,000 in inventory of goods purchased from Mallard.What adjustment should be made for Mallard's 20X8 consolidated financial statements with respect to goods sold to Teal that are still in ending inventory?

A)Decrease cost of sales by $13,500,decrease ending inventory by $10,125;increase non-controlling interest by $3,375
B)Increase cost of sales by $13,500;decrease ending inventory by $10,125;increase non-controlling interest by $3,375
C)Decrease cost of sales by $13,500;decrease ending inventory by $13,500
D)Increase cost of sales by $13,500;decrease ending inventory by $13,500

Question 18

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?

A)$210,000
B)$247,000
C)$300,000
D)$390,000

Question 19

On January 2,20X5,Ross Co.acquired 90% of Singh Ltd.for $490,000.On that date,Singh's shareholders' equity totalled $420,000.Ross uses the equity method to record its investment.On the acquisition date,Ross sold a capital asset,with a remaining useful life of 10 years,to Singh for a gain of $14,000.At Ross's December 31,20X5 year-end,what is the amount of realized profit with respect to the sale of this capital asset? Ignore income taxes.

A)$0
B)$1,400
C)$12,600
D)$14,000

Question 20

A few years ago,Locke Ltd.had purchased a machine from its wholly-owned subsidiary,Dubois Ltd. ,for $90,000.Locke has just sold the machine to an unrelated party for a $15,000 gain.At the time of the sale,there was still an unrealized gain of $50,000 from the purchase from Dubois.With this sale of the asset to the unrelated party,what is the amount of gain that should be recognized on Locke's consolidated financial statements?

A)$15,000
B)$50,000
C)$55,000
D)$65,000

Question 21

On January 1,20X5,PX's shareholders' equity was as follows:
GL held 90% of the 8,000 outstanding shares of PX on January 1,20X5,and its investment in PX account had a balance of $252,000 on that date.GL accounts for its investment in its subsidiary by the equity method using the entity approach.At the time of acquisition of PX,the only fair value increment arising was due to the patent,which had a remaining life of 5 years on January 1,20X5.
The following transactions took place subsequent to January 1,20X5:
• During 20X5,PX reported a net income of $80,000 (earned equally throughout the year).
• PX declared dividends of $10,000 on September 1.
• During 20X6,PX reported a net income of $76,000 and paid dividends of $16,000 on December 1.
• During 20X6,PX sold equipment to GL for $140,000.At the time,the net book value of the equipment to PX was $100,000.There are four years remaining on the useful life of the equipment.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:
Assuming that no value is assigned to patents on the separate-entity financial statements for GL and PX,calculate patents on the consolidated balance sheet at December 31,20X6.
Calculate the allocation of the consolidated net income to the non-controlling interest for each of 20X5 and 20X6.

Question 22

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 at December 31,20X7 was:

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 retained earnings and balance of the non-controlling interest as at December 31,20X7.

Question 23

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?

A)$580
B)$1,620
C)$1,860
D)$2,100

Question 24

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.

Question 25

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.At the end of 20X2,what portion of consolidated net income is attributable to Tooker?

A)$8,400
B)$9,300
C)$9,920
D)$10,500

Question 26

Prawn Corporation owns 80 percent of the outstanding voting shares of Shrimp Corporation,having acquired its interest January 1,20X3 for $100,000.At the time of the acquisition,Shrimp Corporation had a shareholder's equity totalling $150,made up for retained earnings of $30,000 and common shares of $20,000.The following accounts had fair values higher (or lower)than its carrying values:
The equipment had a remaining useful life at the time of acquisition of five years.
The company uses the entity approach to determine the amount of goodwill.

The balance of the land and buildings at December 31,20X6 for Prawn totalled $895,000 and for Shrimp totalled $450,000.
Additional Information:
1.Shrimp had reported $50,000,relating to land (40%)and building (60%)sold to Prawn on January 3,20X5.These separate properties had not been owned on January 1,20X3.Remaining useful life was expected to be 10 years at that time.
2.Shrimp sold other land to a non-related company at a gain of $20,000 on June 30,20X6.
3.Intercompany sales and inventory data for 20X5 and 20X6:
Profit margins on sales by Prawn to Shrimp are 40%.
Profit margins on sales by Shrimp to Prawn are at 30%.
Required:
Calculate the following consolidated balance as at December 31,20X6:
a.Retained earnings
b.Land and Buildings

Question 27

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?

A)$0
B)$12,000
C)$24,000
D)$36,000

Question 28

On the consolidated statement of financial position,which balances differ
Between the parent-company extension method and the entity method?

A)Retained earnings and goodwill
B)Retained earnings and non-controlling interest
C)Goodwill and non-controlling interest
D)Common shares and retained earnings

Question 29

Prawn Corporation owns 80 percent of the outstanding voting shares of Shrimp Corporation,having acquired its interest January 1,20X3 for $100,000.At the time of the acquisition,Shrimp Corporation had a shareholder's equity totalling $150,made up for retained earnings of $30,000 and common shares of $20,000.The following accounts had fair values higher (or lower)than it's carrying values:
The equipment had a remaining useful life at the time of acquisition of five years.
The company uses the entity approach to determine the amount of goodwill.

Additional Information:
1.Shrimp had reported $50,000,relating to land (40%)and building (60%)sold to Prawn on January 3,20X5.These separate properties had not been owned on January 1,20X3.Remaining useful life was expected to be 10 years at that time.
2.Shrimp sold other land to a non-related company at a gain of $20,000 on June 30,20X6.
3.Intercompany sales and inventory data for 20X5 and 20X6:
Profit margins on sales by Prawn to Shrimp are 40%.
Profit margins on sales by Shrimp to Prawn are at 30%.
Required:
Prepare a complete consolidated Statement of Comprehensive Income for the year ending December 31,20X6.

Question 30

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.

Question 31

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 consolidated financial statements,what net book value should be shown for the machine?

A)$125,000
B)$150,000
C)$180,000
D)$250,000

Question 32

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

Required:
Prepare the consolidated statement of financial position for Hot as at August 31,20X9.Calculate the closing balance for the retained earnings and the non-controlling interest.The company used the parent-company extension method to determine goodwill for this acquisition.

Question 33

Ochoa Co.records its investment in its subsidiary using the equity method.What is the first step that Ochoa should make in preparing the consolidated financial statements?

A)Make the acquisition adjustments
B)Make the cumulative operations adjustments
C)Make the current operations adjustments
D)Reverse the effects of equity-based adjustments

Question 34

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

Question 35

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.

Question 36

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.