Deck 5: Consolidation Subsequent to Acquisition Date

Question 1

The rationale behind allocating goodwill across a subsidiary's various cash-generating units is:

A) that doing so will result in more accurate asset valuations.
B) that it is necessary to comply with IASB requirements.
C) that doing so would facilitate comparisons between operating segments.
D)that the cash-generating units will benefit from the synergies of the combination.

Answer 1

D

Question 2

The amount of goodwill arising from this business combination is:

A) Nil.
B) $(24,000).
C) $12,000.
D)$24,000.

Answer 2

D

Question 3

What would be Errant's journal entry to record Grub's Net Income for 2018?

A)
$$\begin{array} { | l | l | l | } \hline & \text { Debit } & \text { Credit } \\\hline \text { Investment in Grub } & \$ 81,000 & \\\hline \text { Equity method inc ome } & & \$ 81,000 \\\hline\end{array}$$
B)
$$\begin{array} { | l | l | l | } \hline & \text { Debit } & \text { Credit } \\\hline \text { Equity method inc ome } & \$ 90,000 & \\\hline \text { Investment in Grub } & & \$ 90,000 \\\hline\end{array}$$
C)
$$\begin{array} { | l | l | l | } \hline & \text { Debit } & \text { Credit } \\\hline \text { Investment in Grub } & \$ 90,000 & \\\hline \text { Equity method inc ome } & & \$ 90,000 \\\hline\end{array}$$
D)No entry is requireD.Under the equity method, the subsidiary's net income is recorded as an increase to the investment asset account and as revenue in the income statement.

Answer 3

$$\begin{array} { | l | l | l | } \hline & \text { Debit } & \text { Credit } \\\hline \text { Investment in Grub } & \$ 90,000 & \\\hline \text { Equity method inc ome } & & \$ 90,000 \\\hline\end{array}$$

Question 4

If Errant used the equity method to account for its investment in Grub and had net income of $160,000 from its own operations (before making any entries to reflect its investment in Grub), what consolidated net income would Errant report in its consolidated income statement for the year ended December 31, 2018?

A) $90,000.
B) $160,000.
C) $230,000.
D)$250,000.

Question 5

Which of the following statements best describes the accounting treatment of Intangible Assets with indefinite lives?

A) All intangible assets are written down when their carrying values exceed their fair market values.
B) With the exception of Goodwill, all intangible assets are written down when their carrying values exceed their fair market values.
C) All intangible assets are written down when their carrying values exceed their undiscounted future cash flows.
D)The recoverable amount is determined and compared to the carrying amount. If the recoverable amount is greater than the carrying amount than no impairment exists; otherwise, there is an impairment and the asset is written down to its recoverable amount.

Question 6

Consolidated Net Income would be:

A) higher if the parent chooses to use Equity Method rather than the Cost Method.
B) higher if the parent chooses to use the Equity Method rather than the Cost Method, provided that the subsidiary showed a profit.
C) lower if the parent chooses to use Equity Method rather than the Cost Method.
D)the same under both the Cost and Equity Methods.

Question 7

The amount of Retained Earnings appearing on the consolidated balance sheet as at January 1, 2018 would be:

A) $60,000.
B) $70,000.
C) $130,000.
D)$160,000.

Question 8

Consolidated Net Income is equal to:

A) the sum of the net incomes of both the parent and its subsidiaries.
B) the sum of the net incomes of both the parent and its subsidiaries less any inter-company dividends.
C) the parent's net income excluding any income arising from its investment in the subsidiary.
D)the parent's net income excluding any income arising from its investment in the Subsidiary, plus the net income of the subsidiary less the amortization of the acquisition differential and the impairment of goodwill.

Question 9

An impairment loss can be reversed when:

A) there is no indication that the impairment loss no longer exists or has been reduced and there has not been a change in the estimates used to determine the assets recoverable amount.
B) with the exception of goodwill, all intangible assets carrying values exceed their fair market values.
C) the intangible assets carrying values exceed their undiscounted future cash flows.
D)with the exception of goodwill, the recoverable amount is determined and compared to the carrying amount. If the recoverable amount is greater than the carrying amount then the impairment loss previously recorded is reversed.

Question 10

What would be the journal entry to record the dividends received by Errant during the year?

A)
$$\begin{array} { | l | l | l | } \hline & \text { Debit } & \text { Credit } \\\hline \text { Cash } & \$ 9,000 & \\\hline \text { Investment in Grub } & & \$ 9,000 \\\hline\end{array}$$
B)
$$\begin{array} { | l | l | l | } \hline & \text { Debit } & \text { Credit } \\\hline \text { Cash } & \$ 9,000 & \\\hline \text { Equity method inc ome } & & \$ 9,000 \\\hline\end{array}$$
C)
$$\begin{array} { | l | l | l | } \hline & \text { Debit } & \text { Credit } \\\hline \text { Cash } & \$ 9,000 & \\\hline \text { Acquisition Differential } & & \$ 9,000 \\\hline\end{array}$$

Question 11

What would be Errant's journal entry to record the amortization of the acquisition differential (excluding any goodwill impairment) on December 31, 2018? (Assume that any difference between the fair values and book values of the equipment, trademark and bonds payable would all be amortized over 10 years.)

A)
$$\begin{array} { | l | l | l | } \hline & \text { Debit } & \text { Credit } \\\hline \text { Equity method inc ome } & \$ 18,800 & \\\hline \text { investment in Grub } & & \$ 18,800 \\\hline\end{array}$$
B)
$$\begin{array} { | l | l | l | } \hline & \text { Debit } & \text { Credit } \\\hline \text { Equity method inc ome } & \$ 16,000 & \\\hline \text { imestment in Grub } & & \$ 16,000 \\\hline\end{array}$$
C)
$$\begin{array} { | l | l | l | } \hline & \text { Debit } & \text { Credit } \\\hline \text { Investment in Grub } & \$ 18,800 & \\\hline \text { Equity method inc ome } & & \$ 18,800 \\\hline\end{array}$$

Question 12

Consolidated Retained Earnings include:

A) consolidated net income less any dividends declared by either the parent or the subsidiary.
B) consolidated net income less any dividends declared by the parent only.
C) the parent's net income plus its share of the subsidiary's income less any dividends declared by either the parent or the subsidiary.
D)the parent's share of consolidated net income less any dividends declared by the parent.

Question 13

Assuming that Errant uses the Cost Method, what would be the journal entry to record the dividends received by Errant during the year?

A)
$$\begin{array} { | l | l | l | } \hline & \text { Debit } & \text { Credit } \\\hline \text { Cash } & \$ 9,000 & \\\hline \text { Investment in Grub } & & \$ 9,000 \\\hline\end{array}$$
B)
$$\begin{array} { | l | l | l | } \hline & \text { Debit } & \text { Credit } \\\hline \text { Cash } & \$ 9,000 & \\\hline \text { Dividend Income } & & \$ 9,000 \\\hline\end{array}$$
C)
$$\begin{array} { | l | l | l | } \hline & \text { Debit } & \text { Credit } \\\hline \text { Cash } & \$ 9,000 & \\\hline \text { Acquisition Income } & & \$ 9,000 \\\hline\end{array}$$

Question 14

Intangible assets with definite useful lives should be amortized:

A) over their useful lives.
B) over the time periods provided under IAS 36 Impairment of Assets which prescribes amortization periods for different classes of assets.
C) under the applicable capital cost allowance rates provided by the Canada Revenue Agency.
D)over two years.

Question 15

If Errant used the equity method to account for its investment in Grub and had net income of $160,000 from its own operations (before making any entries to reflect its investment in Grub) and paid no dividends in 2018, what amount of consolidated retained earnings would appear on Errant's consolidated balance sheet as at December 31, 2018?

A) $60,000.
B) $130,000.
C) $160,000.
D)$300,000.

Question 16

Testing intangible assets with indefinite useful lives for impairment:

A) occurs every year.
B) occurs when only there has been an indication of an impairment in the value of the asset such as a reduction in cash flow generation, idle assets, etc.
C) never occurs because the asset has an indefinite useful life.
D)occurs whenever required by the company's auditors.

Question 17

How much Goodwill will be carried on Grub's balance sheet on December 31, 2018?

A) Nil.
B) $(24,000).
C) $20,000.
D)$24,000.

Question 18

Under the Cost Method, which of the following statements is TRUE?

A) The parent's investment in the subsidiary is recorded at cost, and only changed thereafter if there has been a permanent impairment in the value of the investment.
B) The parent records its pro rata share of the subsidiary's post-acquisition income as an increase to the investment account and reduces the investment account with its share of the dividends declared by the subsidiary.
C) The parent records its pro rata share of the subsidiary's cumulative earnings as an increase to the investment account and reduces the investment account with its share of the dividends declared by the subsidiary.
D)The parent's investment in the subsidiary is recorded at cost and reduced by any excess dividends received from the subsidiary.

Question 19

Which of the following journal entries would be required on December 31, 2018 to record the Impairment of the Goodwill?

A) No entry is required.
B) $$\begin{array} { | l | l | l | } \hline & \text { Debit } & \text { Credit } \\\hline \text { Equity method inc ome } & \$ 4,000 & \\\hline \text { Imvestment in Grub } & & \$ 4,000 \\\hline\end{array}$$
C) $$\begin{array} { | l | l | l | } \hline & \text { Debit } & \text { Credit } \\\hline \text { Investment in Grub } & \$ 4,000 & \\\hline \text { Equity method inc ome } & & \$ 4,000 \\\hline\end{array}$$
D) $$\begin{array} { | l | l | l | } \hline & \text { Debit } & \text { Credit } \\\hline \text { Equity method income } & \$ 4,000 & \\\hline \text { Investment in Grub } & & \$ 4,000 \\\hline\end{array}$$

Question 20

Under the Equity Method, which of the following statements is TRUE?

A) The parent's investment in the subsidiary is recorded at cost, and only changed thereafter if there has been a permanent impairment in the value of the investment.
B) The parent records its pro rata share of the subsidiary's post-acquisition income as an increase to the investment account and reduces the investment account with its share of the dividends declared by the subsidiary.
C) The parent records its pro rata share of the subsidiary's cumulative earnings as an increase to the investment account and reduces the investment account with its share of the dividends declared by the subsidiary.
D)The parent's investment in the subsidiary is recorded at cost and reduced by any excess dividends received from the subsidiary.

Question 21

Big Guy's consolidated retained earnings as at June 30, 2020 would be:

A) $1,169,040.
B) $1,486,400.
C) $1,500,000.
D)$1,508,000.

Question 22

Which of the following adjustments (if any) to Retained Earnings is necessary for the preparation of the consolidated balance sheet?

A) Under both the Cost and Equity methods, the parent must record its share of its Subsidiary's income.
B) Under both the Cost and Equity methods, the parent must record its share of its Subsidiary's income less any dividends received from the subsidiary.
C) No adjustment is required under either the Cost or the Equity methods.
D)No adjustment is required if the parent has been using the Equity Method.

Question 23

The amount of other expenses appearing on Big Guy's June 30, 2020 consolidated income statement would be:

A) $11,600.
B) $12,000.
C) $13,000.
D)$13,400.

Question 24

The amount of interest expense appearing on Big Guy's June 30, 2020 consolidated income statement would be:

A) $36,000.
B) $57,600.
C) $62,400.
D)$63,000.

Question 25

GNR Inc. owns 100% of NMX Inc. During the year, NMX Inc. earned a net income of $40,000 and paid dividends of $10,000.
Assuming that GNR owned 80% of NMX instead of 100%, what would be the effect on GNR's investment in NMX account under the Cost Method?

A) An increase of $24,000.
B) An increase of $30,000.
C) An increase of $40,000.
D)No effect.

Question 26

What amount of dividends would appear on Big Guy's consolidated statement of retained earnings as at June 30, 2020?

A) $2,000.
B) $20,000.
C) $21,600.
D)$22,000.

Question 27

The amount of Goodwill arising from this business combination is:

A) Nil.
B) $(40,000).
C) $50,000.
D)$64,000.

Question 28

The amount of depreciation expense appearing on Big Guy's June 30, 2020 consolidated income statement would be:

A) $113,400.
B) $113,720.
C) $115,000.
D)$116,280.

Question 29

GNR Inc. owns 100% of NMX Inc. During the year, NMX Inc. earned a net income of $40,000 and paid dividends of $10,000.
Assuming once again that GNR owned 80% of NXR instead of 100%, what would be the effect on GNR's investment in NMX account under the cost method if GNR received $9,000 in dividends from NMX?

A) An increase of $23,000.
B) An increase of $1,000
C) No effect.
D)A decrease of $1,000.

Question 30

GNR Inc. owns 100% of NMX Inc. During the year, NMX Inc. earned a net income of $40,000 and paid dividends of $10,000.
Assuming that GNR Inc. uses the Cost Method, what effect would the above information have on GNR's investment in NMX account?

A) An increase of $10,000.
B) An increase of $30,000.
C) An increase of $40,000
D)No effect.

Question 31

Company A sells inventory to its subsidiary, Company B at a mark-up of 20% on cost. Of what significance is this transaction, should A wish to prepare consolidated financial statements? The inventory is still in B's warehouse at year end.

A) This is not significant. Any inter-company profits are eliminated during the Consolidation process.
B) A's net income will be under-stated.
C) B's income will be over-stated.
D)There will be unrealized profits in inventory which will only be realized once B sells this inventory to outsiders.

Question 32

Any excess of fair value over book value attributable to land on the date of acquisition is to be:

A) allocated to other identifiable assets.
B) capitalized and amortized.
C) charged to Retained Earnings on the date of acquisition.
D)taken into income when the Land is sold.

Question 33

The Net Income attributable to Big Guy appearing on Big Guy's consolidated income statement on June 30, 2020 would be:

A) $216,080.
B) $218,480.
C) $228,480.
D)$279,600.

Question 34

GNR Inc. owns 100% of NMX Inc. During the year, NMX Inc. earned a net income of $40,000 and paid dividends of $10,000.
Assuming that GNR Inc. uses the Equity Method, what effect would the above information have on GNR's investment in NMX account?

A) An increase of $10,000.
B) An increase of $30,000.
C) An increase of $40,000.
D)No effect.

Question 35

The amount of Non-Controlling Interest on Big Guy's consolidated balance sheet on July 1, 2017 would be:

A) $0.
B) $88,000.
C) $90,000.
D)$270,000.

Question 36

The amount of non-controlling interest appearing on Big Guy's June 30, 2020 consolidated income statement would be:

A) Nil.
B) $2,000.
C) $2,120.
D)$3,600.

Question 37

GNR Inc. owns 100% of NMX Inc. During the year, NMX Inc. earned a net income of $40,000 and paid dividends of $10,000.
Assuming that GNR owned 80% of NXR instead of 100%, what would be the effect on GNR's investment in NMX account under the Equity Method?

A) An increase of $24,000.
B) An increase of $30,000.
C) An increase of $40,000.
D)No effect.

Question 38

If the parent company used the equity method to account for its investment and the subsidiary company showed a profit for the past year, the consolidation elimination entry required to remove a subsidiary's income from the parent's books prior to the preparation of consolidated financial statements would be:

A)
$$\begin{array} { | l | l | l | } \hline & \text { Debit } &\text { Credit } \\\hline \text { Equity method income - Parent } & \$ \$ \$ & \\\hline \text { Retained Earnings - Parent } & & \$ \$ \$ \\\hline\end{array}$$
B)
$$\begin{array} { | l | l | l | } \hline & \text { Debit} &\text {credit } \\\hline \text { Equity method income - Parent } & \$ \$ \$ & \\\hline \text { Investment in Subsidiary } & & \$ \$ \$ \$ \\\hline\end{array}$$
C)
$$\begin{array} { | l | l | l | } \hline & \text { Debit } &\text {credit } \\\hline \text { Equity method income - Parent } & \$ \$ \$ & \\\hline \text { Acquisition Differential } & & \$ \$ \$ \\\hline\end{array}$$

Question 39

Consolidated shareholders' equity:

A) does not include any non-controlling Interest.
B) is equal to the sum of the Shareholders' Equity Sections of the parent and the subsidiary.
C) is equal to that of the parent company under the Equity Method.
D)is higher under the Equity Method when the subsidiary does not declare dividends.

Question 40

The consolidation elimination entry required to remove any dividends received from a subsidiary prior to the preparation of consolidated financial statements (assuming that the parent uses the cost method to record its investment in the sub) would be:

A)
$$\begin{array} { | l | l | l | } \hline & \text { Debit } &\text {Credit } \\\hline \text { Equity method income - Parent } & \$ \$ \$ & \\\hline \text { Retained Earnings - Parent } & & \$ \$ \$ \\\hline\end{array}$$
B)
$$\begin{array} { | l | l | l | } \hline & \text { Debit } &\text {Credit } \\\hline \text { Dividend Income - Subsidiary } & \$ \$ \$ & \\\hline \text { Investment in Subsidiary } & & \$ \$ \$ \$ \\\hline\end{array}$$
C)
$$\begin{array} { | l | l | l | } \hline & \text { Debit} &\text {credit } \\\hline \text { Dividend Income - Parent }& \$ \$ \$ \$ & \\\hline \text { Dividends - Subsidiary } & & \$ \$ \$ \\\hline\end{array}$$

Question 41

Davis Inc. purchased a controlling interest in Martin Inc. on January 1, 2015, when Martin's common shares and retained earnings were carried at $180,000 and $60,000 respectively. On that date, Martin's book values approximated its fair values, with the exception of the company's inventories and a Patent held by Martin. The patent, which had an estimated remaining useful life of ten years, had a fair value which was $20,000 higher than its book value. Martin's Inventories on January 1, 2015 were estimated to have a fair value that was $16,000 higher than their book value.
It was predicted that Martin's goodwill impairment test, which was to be conducted on December 31, 2016, would result in a loss equal to 10% of the goodwill (regardless of the amount) at the date of acquisition being recorded. During 2015, Martin reported a net income of $60,000 and paid $12,000 in dividends. Martin's 2016 net income and dividends were $72,000 and $15,000, respectively. Martin uses straight-line amortization for all of its assets.
Assuming that Davis purchases 100% of Martin for $300,000, answer the following:
Required:
a) Prepare Davis' Equity Method journal entries for 2015 and 2016.
b) Compute the following as at December 31, 2016:
i. Investment in Martin Inc.
ii. Goodwill
iii. The amount of unamortized acquisition differential.

Question 42

Par Inc. purchased 70% of the outstanding voting shares of Sub Inc. for $700,000 on July 1, 2015. On that date, Sub Inc. had common shares and retained earnings worth $410,000 and $170,000, respectively. The Equipment had a remaining useful life of 5 years from the date of acquisition. Sub's bonds mature on July 1, 2020. The inventory was sold in the year following the acquisition. Both companies use straight line amortization, and no salvage value is assumed for assets. Par Inc. and Sub Inc. declared and paid $10,000 and $5,000 in dividends, respectively during the year.
The balance sheets of both companies, as well as Sub's fair values immediately following the acquisition are shown below: $\begin{array}{|l|l|l|l|}\hline & \text { Par Inc. } & \text { Sub Inc. } & \text { Sub Inc. } \\\hline & \text { (carrying value) } & \text { (carrying value) } & \text { (fair value) } \\\hline \text { Cash } & \$ 600,000 & \$ 515,000 & \$ 515,000 \\\hline \text { Accounts Receivable } & \$ 140,000 & \$ 85,000 & \$ 85,000 \\\hline \text { Imventory } & \$ 60,000 & \$ 45,000 & \$ 60,000 \\\hline \text { Investment in Sub Inc. } & \$ 700,000 & & \\\hline \text { Equipment (net) } & \$ 50,000 & \$ 180,000 & \$ 185,000 \\\hline \text { Land } & & \$ 115,000 & \$ 200,000 \\\hline \text { Total Assets } & \$ 1,550,000 & \$ 940,000 & \\\hline \text { Current Liabilities } & \$ 100,000 & \$ 280,000 & \$ 280,000 \\\hline \text { Bonds Pay able } & \$ 160,000 & \$ 80,000 & \$ 60,000 \\\hline \text { Common Shares } & \$ 800,000 & \$ 410,000 & \\\hline \text { Retained Earnings } & \$ 490,000 & \$ 170,000 & \\\hline \text { Total Labilities and Equity } & \$ 1,550,000 & \$ 940,000 & \\\hline & & & \\\hline\end{array}$
The following are the financial statements for both companies for the fiscal year ended June 30, 2016:
Income Statements
$$\begin{array} { | l | l | l | } \hline \text { Sales } & \$ 800,000 & \$ 300,000 \\\hline \text { Investment Revenue } & \$ 21,000 & \\\hline \text { Less: Expenses: } & & \\\hline \text { Cost of Goods Sold } & \$ 240,000 & \$ 180,000 \\\hline \text { Depreciation } & \$ 10,000 & \$ 20,000 \\\hline \text { Interest Expense } & \$ 12,000 & \$ 40,000 \\\hline \text { Other Expenses } & \$ 8,000 & \$ 10,000 \\\hline \text { Net Income } & \$ 551,000 & \$ 50,000 \\\hline & & \\\hline\end{array}$$ Retained Earnings Statements
$\begin{array}{|l|l|l|}\hline \text { Balance, Juky 1,2015 } & \$ 490,000 & \$ 170,000 \\\hline \text { Net Income } & \$ 551,000 & \$ 50,000 \\\hline \text { Dividends } & \$(10,000) & \$(5,000) \\\hline \text { Balance, June 30, 201 } 6 & \$ 1,031,000 & \$ 215,000 \\\hline\end{array}$ Balance Sheets
$$\begin{array} { | l | l | l | } \hline & \text { Par Inc. } & \text { Sub Inc. } \\\hline & & \\\hline \text { Cash } & \$ 647,500 & \$ 665,000 \\\hline \text { Accounts Receivable } & \$ 250,000 & \$ 36,000 \\\hline \text { Investment in Sub } & \$ 717,500 & \\\hline \text { Inventory } & \$ 90,000 & \$ 46,000 \\\hline \text { Equipment (net) } & \$ 750,000 & \$ 170,000 \\\hline \text { Land } & & \$ 115,000 \\\hline \text { Total Assets } & \$ 2,455,000 & \$ 1,030,000 \\\hline & & \\\hline \text { Current Liabilities } & \$ 464,000 & \$ 325,000 \\\hline \text { Bonds Pay able } & \$ 160,000 & \$ 80,000 \\\hline \text { Common Shares } & \$ 800,000 & \$ 410,000 \\\hline \text { Retained Earnings } & \$ 1,031,000 & \$ 215,000 \\\hline \text { Total Labilities and Equiby } & \$ 2,455,000 & \$ 1,030,000 \\\hline & & \\\hline\end{array}$$ Both companies use a FIFO system, and Sub's entire inventory on the date of acquisition was sold during the following year. During 2015, Sub Inc. borrowed $10,000 in cash from Par Inc. interest free to finance its operations. Par uses the Equity Method to account for its investment in Sub Inc. Corp.

-Prepare a consolidated balance sheet for Par Inc. as at June 30, 2016.

Question 43

Linton Inc. purchased 75% of Marsh Inc. on January 1, 2015 for $1,000,000. Marsh's common shares and retained earnings were worth $400,000 each on that date. The acquisition differential was allocated as follows: $$\begin{array} { | l | l | } \hline \text { Trademark } & \$ 15,000 \text { (which had not been prew iousty recorded) } \\\hline \text { Inventory } & \$ 8,000 \text { (fair value in excess of bookvalue) } \\\hline\end{array}$$ The balance was allocated to goodwill. The trademark had an estimated remaining useful life of 10 years from the date of acquisition. Marsh Inc. uses straight line amortization.
In 2015, Marsh's net income was $40,000. Marsh paid $5,000 in dividends to shareholders on record as at December 31, 2015. In 2016, Marsh reported a net income of $8,000 and declared $1,000 in dividends.
Required:
a) Prepare the equity method journal entries for Linton for 2015 and 2016.
b) Calculate the value of Marsh's trademark as at December 31, 2016.
c) Prepare a statement that shows the changes in Linton's non-controlling interest in 2016.

Question 44

Selectron Inc. acquired 60% of Insor Inc. on January 1, 2016 for $180,000, when Insor's Common Shares and Retained Earnings were worth $60,000 and $180,000 respectively. Insor's fair values approximated their book values on that date. Selectron currently uses the Equity Method to account for its investment in Insor.
During 2016, investment Income in the amount of $12,000 and Dividends in the amount of $1,200 were recorded in Selectron's investment in Insor account. During 2017, investment income in the amount of $24,000 and Dividends in the amount of $2,400 were recorded in Selectron's investment in Insor account. Typically, Insor declares dividends in the amount of 10% of its earnings.
Required:
a) Compute Insor's net income for 2016 and 2017.
b) Compute the amount of dividends declared by Insor in each year.
c) Compute the balance in the non-controlling interest count as at December 31, 2017.

Question 45

Brand X Inc. purchased a controlling interest in Brand Y Inc. on January 1, 2017. On that date, Brand Y Inc. had common shares and retained earnings worth $180,000 and $20,000, respectively. Goodwill is tested annually for impairment. At the date of acquisition, Brand Y's assets and liabilities were assessed for fair value as follows: $$\begin{array} { | l | l | } \hline \text { Inventory } & \$ 5,000 \text { less than book value } \\\hline \text { Equipment } & \$ 30,000 \text { less than book value } \\\hline \text { Patent } & \$ 24,000 \text { greater than fair value } \\\hline \text { Bonds Payable } & \$ 5,000 \text { less than book value } \\\hline\end{array}$$ The balance sheets of both companies, as at December 31, 2017 are disclosed below:
$$\begin{array} { | l | l | l | } \hline & \text { Brand } \times \text { Inc } & \text { Brand Y Inc } \\\hline \text { Cash } & \$ 200,000 & \$ 45,000 \\\hline \text { Accounts Receivable } & \$ 100,000 & \$ 40,000 \\\hline \text { Inventory } & \$ 80,000 & \$ 56,000 \\\hline \text { Equipment (net) } & \$ 220,000 & \$ 100,000 \\\hline \text { Patent } & & \$ 60,000 \\\hline \text { Imestment in Brand Y } & \$ 348,000 & \\\hline \text { Total Assets } & \$ 948,000 & \$ 300,000 \\\hline & & \\\hline \text { Current Liabilities } & \$ 480,000 & \$ 53,000 \\\hline \text { Bonds Payable } & \$ 270,000 & \$ 50,000 \\\hline \text { Common Shares } & \$ 100,000 & \$ 180,000 \\\hline \text { Retained Earnings } & \$ 98,000 & \$ 19,000 \\\hline \text { Total Labilities and Equiby } & \$ 948,000 & \$ 300,000 \\\hline& & \\\hline\end{array}$$ The net incomes for Brand X and Brand Y for the year ended December 31, 2017 were $1,000 and $50,000 respectively. An impairment test conducted on December 31, 2017 revealed that the Goodwill should actually have a value $2,000 lower than the amount calculated on the date of acquisition. Both companies use a FIFO system, and Brand Y's inventory on the date of acquisition was sold during the year. Brand X did not declare any dividends during the year. However, Brand Y paid $51,000 in dividends to make up for several years in which the company had never paid any dividends. Brand Y's equipment and patent have useful lives of 10 years and 6 years respectively from the date of acquisition. All bonds payable mature on January 1, 2022.
Prepare Brand X's consolidated balance sheet as at December 31, 2017, assuming that Brand X purchased 100% of Brand Y for $350,000 and accounts for its investment using the equity method.

Question 46

The amount of Current Liabilities appearing on Big Guy's consolidated balance sheet as at June 30, 2020 would be:

A) $350,000.
B) $630,000.
C) $662,000.
D)$682,000.

Question 47

Par Inc. purchased 70% of the outstanding voting shares of Sub Inc. for $700,000 on July 1, 2015. On that date, Sub Inc. had common shares and retained earnings worth $410,000 and $170,000, respectively. The Equipment had a remaining useful life of 5 years from the date of acquisition. Sub's bonds mature on July 1, 2020. The inventory was sold in the year following the acquisition. Both companies use straight line amortization, and no salvage value is assumed for assets. Par Inc. and Sub Inc. declared and paid $10,000 and $5,000 in dividends, respectively during the year.
The balance sheets of both companies, as well as Sub's fair values immediately following the acquisition are shown below: $\begin{array}{|l|l|l|l|}\hline & \text { Par Inc. } & \text { Sub Inc. } & \text { Sub Inc. } \\\hline & \text { (carrying value) } & \text { (carrying value) } & \text { (fair value) } \\\hline \text { Cash } & \$ 600,000 & \$ 515,000 & \$ 515,000 \\\hline \text { Accounts Receivable } & \$ 140,000 & \$ 85,000 & \$ 85,000 \\\hline \text { Imventory } & \$ 60,000 & \$ 45,000 & \$ 60,000 \\\hline \text { Investment in Sub Inc. } & \$ 700,000 & & \\\hline \text { Equipment (net) } & \$ 50,000 & \$ 180,000 & \$ 185,000 \\\hline \text { Land } & & \$ 115,000 & \$ 200,000 \\\hline \text { Total Assets } & \$ 1,550,000 & \$ 940,000 & \\\hline \text { Current Liabilities } & \$ 100,000 & \$ 280,000 & \$ 280,000 \\\hline \text { Bonds Pay able } & \$ 160,000 & \$ 80,000 & \$ 60,000 \\\hline \text { Common Shares } & \$ 800,000 & \$ 410,000 & \\\hline \text { Retained Earnings } & \$ 490,000 & \$ 170,000 & \\\hline \text { Total Labilities and Equity } & \$ 1,550,000 & \$ 940,000 & \\\hline & & & \\\hline\end{array}$
The following are the financial statements for both companies for the fiscal year ended June 30, 2016:
Income Statements
$$\begin{array} { | l | l | l | } \hline \text { Sales } & \$ 800,000 & \$ 300,000 \\\hline \text { Investment Revenue } & \$ 21,000 & \\\hline \text { Less: Expenses: } & & \\\hline \text { Cost of Goods Sold } & \$ 240,000 & \$ 180,000 \\\hline \text { Depreciation } & \$ 10,000 & \$ 20,000 \\\hline \text { Interest Expense } & \$ 12,000 & \$ 40,000 \\\hline \text { Other Expenses } & \$ 8,000 & \$ 10,000 \\\hline \text { Net Income } & \$ 551,000 & \$ 50,000 \\\hline & & \\\hline\end{array}$$ Retained Earnings Statements
$\begin{array}{|l|l|l|}\hline \text { Balance, Juky 1,2015 } & \$ 490,000 & \$ 170,000 \\\hline \text { Net Income } & \$ 551,000 & \$ 50,000 \\\hline \text { Dividends } & \$(10,000) & \$(5,000) \\\hline \text { Balance, June 30, 201 } 6 & \$ 1,031,000 & \$ 215,000 \\\hline\end{array}$ Balance Sheets
$$\begin{array} { | l | l | l | } \hline & \text { Par Inc. } & \text { Sub Inc. } \\\hline & & \\\hline \text { Cash } & \$ 647,500 & \$ 665,000 \\\hline \text { Accounts Receivable } & \$ 250,000 & \$ 36,000 \\\hline \text { Investment in Sub } & \$ 717,500 & \\\hline \text { Inventory } & \$ 90,000 & \$ 46,000 \\\hline \text { Equipment (net) } & \$ 750,000 & \$ 170,000 \\\hline \text { Land } & & \$ 115,000 \\\hline \text { Total Assets } & \$ 2,455,000 & \$ 1,030,000 \\\hline & & \\\hline \text { Current Liabilities } & \$ 464,000 & \$ 325,000 \\\hline \text { Bonds Pay able } & \$ 160,000 & \$ 80,000 \\\hline \text { Common Shares } & \$ 800,000 & \$ 410,000 \\\hline \text { Retained Earnings } & \$ 1,031,000 & \$ 215,000 \\\hline \text { Total Labilities and Equiby } & \$ 2,455,000 & \$ 1,030,000 \\\hline & & \\\hline\end{array}$$ Both companies use a FIFO system, and Sub's entire inventory on the date of acquisition was sold during the following year. During 2015, Sub Inc. borrowed $10,000 in cash from Par Inc. interest free to finance its operations. Par uses the Equity Method to account for its investment in Sub Inc. Corp.

-Prepare Par's consolidated income statement for the year ended June 30, 2016. Show the allocation of consolidated net income between the controlling and non-controlling interests.

Question 48

The amount of non-controlling interest appearing on Big Guy's consolidated balance sheet as at June 30, 2020 would be:

A) $79,760.
B) $83,600.
C) $90,000.
D)$226,400.

Question 49

Davis Inc. purchased a controlling interest in Martin Inc. on January 1, 2015, when Martin's common shares and retained earnings were carried at $180,000 and $60,000 respectively. On that date, Martin's book values approximated its fair values, with the exception of the company's inventories and a Patent held by Martin. The patent, which had an estimated remaining useful life of ten years, had a fair value which was $20,000 higher than its book value. Martin's Inventories on January 1, 2015 were estimated to have a fair value that was $16,000 higher than their book value.
It was predicted that Martin's goodwill impairment test, which was to be conducted on December 31, 2016, would result in a loss equal to 10% of the goodwill (regardless of the amount) at the date of acquisition being recorded. During 2015, Martin reported a net income of $60,000 and paid $12,000 in dividends. Martin's 2016 net income and dividends were $72,000 and $15,000, respectively. Martin uses straight-line amortization for all of its assets.
Assuming that Davis purchases 80% of Martin for $300,000, answer the following:
Required:
Prepare Davis' Equity-Method journal entries for 2015 and 2016.
a) Compute the following as at December 31, 2016:
i. Investment in Martin Inc.
ii. Goodwill
iii. The amount of unamortized acquisition differential.

Question 50

Par Inc. purchased 70% of the outstanding voting shares of Sub Inc. for $700,000 on July 1, 2015. On that date, Sub Inc. had common shares and retained earnings worth $410,000 and $170,000, respectively. The Equipment had a remaining useful life of 5 years from the date of acquisition. Sub's bonds mature on July 1, 2020. The inventory was sold in the year following the acquisition. Both companies use straight line amortization, and no salvage value is assumed for assets. Par Inc. and Sub Inc. declared and paid $10,000 and $5,000 in dividends, respectively during the year.
The balance sheets of both companies, as well as Sub's fair values immediately following the acquisition are shown below: $\begin{array}{|l|l|l|l|}\hline & \text { Par Inc. } & \text { Sub Inc. } & \text { Sub Inc. } \\\hline & \text { (carrying value) } & \text { (carrying value) } & \text { (fair value) } \\\hline \text { Cash } & \$ 600,000 & \$ 515,000 & \$ 515,000 \\\hline \text { Accounts Receivable } & \$ 140,000 & \$ 85,000 & \$ 85,000 \\\hline \text { Imventory } & \$ 60,000 & \$ 45,000 & \$ 60,000 \\\hline \text { Investment in Sub Inc. } & \$ 700,000 & & \\\hline \text { Equipment (net) } & \$ 50,000 & \$ 180,000 & \$ 185,000 \\\hline \text { Land } & & \$ 115,000 & \$ 200,000 \\\hline \text { Total Assets } & \$ 1,550,000 & \$ 940,000 & \\\hline \text { Current Liabilities } & \$ 100,000 & \$ 280,000 & \$ 280,000 \\\hline \text { Bonds Pay able } & \$ 160,000 & \$ 80,000 & \$ 60,000 \\\hline \text { Common Shares } & \$ 800,000 & \$ 410,000 & \\\hline \text { Retained Earnings } & \$ 490,000 & \$ 170,000 & \\\hline \text { Total Labilities and Equity } & \$ 1,550,000 & \$ 940,000 & \\\hline & & & \\\hline\end{array}$
The following are the financial statements for both companies for the fiscal year ended June 30, 2016:
Income Statements
$$\begin{array} { | l | l | l | } \hline \text { Sales } & \$ 800,000 & \$ 300,000 \\\hline \text { Investment Revenue } & \$ 21,000 & \\\hline \text { Less: Expenses: } & & \\\hline \text { Cost of Goods Sold } & \$ 240,000 & \$ 180,000 \\\hline \text { Depreciation } & \$ 10,000 & \$ 20,000 \\\hline \text { Interest Expense } & \$ 12,000 & \$ 40,000 \\\hline \text { Other Expenses } & \$ 8,000 & \$ 10,000 \\\hline \text { Net Income } & \$ 551,000 & \$ 50,000 \\\hline & & \\\hline\end{array}$$ Retained Earnings Statements
$\begin{array}{|l|l|l|}\hline \text { Balance, Juky 1,2015 } & \$ 490,000 & \$ 170,000 \\\hline \text { Net Income } & \$ 551,000 & \$ 50,000 \\\hline \text { Dividends } & \$(10,000) & \$(5,000) \\\hline \text { Balance, June 30, 201 } 6 & \$ 1,031,000 & \$ 215,000 \\\hline\end{array}$ Balance Sheets
$$\begin{array} { | l | l | l | } \hline & \text { Par Inc. } & \text { Sub Inc. } \\\hline & & \\\hline \text { Cash } & \$ 647,500 & \$ 665,000 \\\hline \text { Accounts Receivable } & \$ 250,000 & \$ 36,000 \\\hline \text { Investment in Sub } & \$ 717,500 & \\\hline \text { Inventory } & \$ 90,000 & \$ 46,000 \\\hline \text { Equipment (net) } & \$ 750,000 & \$ 170,000 \\\hline \text { Land } & & \$ 115,000 \\\hline \text { Total Assets } & \$ 2,455,000 & \$ 1,030,000 \\\hline & & \\\hline \text { Current Liabilities } & \$ 464,000 & \$ 325,000 \\\hline \text { Bonds Pay able } & \$ 160,000 & \$ 80,000 \\\hline \text { Common Shares } & \$ 800,000 & \$ 410,000 \\\hline \text { Retained Earnings } & \$ 1,031,000 & \$ 215,000 \\\hline \text { Total Labilities and Equiby } & \$ 2,455,000 & \$ 1,030,000 \\\hline & & \\\hline\end{array}$$ Both companies use a FIFO system, and Sub's entire inventory on the date of acquisition was sold during the following year. During 2015, Sub Inc. borrowed $10,000 in cash from Par Inc. interest free to finance its operations. Par uses the Equity Method to account for its investment in Sub Inc. Corp.

-Prepare Par's statement of consolidated retained earnings for the year ended June 30, 2016.

Question 51

What amount would appear as Big Guy's investment in Humble Corp. on its June 30, 2020 consolidated balance sheet?

A) $9,600.
B) $12,000.
C) $360,000.
D)The Investment in Humble Account would not appear on the consolidated balance sheet.

Question 52

Brand X Inc. purchased a controlling interest in Brand Y Inc. on January 1, 2017. On that date, Brand Y Inc. had common shares and retained earnings worth $180,000 and $20,000, respectively. Goodwill is tested annually for impairment. At the date of acquisition, Brand Y's assets and liabilities were assessed for fair value as follows: $\begin{array}{|l|l|}\hline \text { Inventory } & \$ 5,000 \text { less than book value } \\\hline \text { Equipment } & \$ 30,000 \text { less than book value } \\\hline \text { Patent } & \$ 24,000 \text { greater than fair value } \\\hline \text { Bonds Pay able } & \$ 5,000 \text { less than book value } \\\hline\end{array}$ The balance sheets of both companies, as at December 31, 2017 are disclosed below:
$$\begin{array} { | l | l | l | } \hline & \text { Brand } \times \text { Inc } & \text { Brand Y Inc } \\\hline \text { Cash } & \$ 200,000 & \$ 45,000 \\\hline \text { Accounts Receivable } & \$ 100,000 & \$ 40,000 \\\hline \text { Inventory } & \$ 80,000 & \$ 56,000 \\\hline \text { Equipment (net) } & \$ 220,000 & \$ 100,000 \\\hline \text { Patent } & & \$ 60,000 \\\hline \text { Imestment in Brand Y } & \$ 348,000 & \\\hline \text { Total Assets } & \$ 948,000 & \$ 300,000 \\\hline & & \\\hline \text { Current Liabilities } & \$ 480,000 & \$ 53,000 \\\hline \text { Bonds Payable } & \$ 270,000 & \$ 50,000 \\\hline \text { Common Shares } & \$ 100,000 & \$ 180,000 \\\hline \text { Retained Earnings } & \$ 98,000 & \$ 19,000 \\\hline \text { Total Labilities and Equity } & \$ 948,000 & \$ 300,000 \\\hline\\\hline\end{array}$$ The net incomes for Brand X and Brand Y for the year ended December 31, 2017 were $1,000 and $50,000 respectively. An impairment test conducted on December 31, 2017 revealed that the Goodwill should actually have a value $2,000 lower than the amount calculated on the date of acquisition. Both companies use a FIFO system, and Brand Y's inventory on the date of acquisition was sold during the year. Brand X did not declare any dividends during the year. However, Brand Y paid $51,000 in dividends to make up for several years in which the company had never paid any dividends. Brand Y's equipment and patent have useful lives of 10 years and 6 years respectively from the date of acquisition. All bonds payable mature on January 1, 2022.
Prepare Brand X's consolidated balance sheet as at December 31, 2017, assuming that Brand X purchased 80% of Brand Y for $350,000 and accounts for its investment using the equity method.

Question 53

Par Inc. purchased 70% of the outstanding voting shares of Sub Inc. for $700,000 on July 1, 2015. On that date, Sub Inc. had common shares and retained earnings worth $410,000 and $170,000, respectively. The Equipment had a remaining useful life of 5 years from the date of acquisition. Sub's bonds mature on July 1, 2020. The inventory was sold in the year following the acquisition. Both companies use straight line amortization, and no salvage value is assumed for assets. Par Inc. and Sub Inc. declared and paid $10,000 and $5,000 in dividends, respectively during the year.
The balance sheets of both companies, as well as Sub's fair values immediately following the acquisition are shown below: $\begin{array}{|l|l|l|l|}\hline & \text { Par Inc. } & \text { Sub Inc. } & \text { Sub Inc. } \\\hline & \text { (carrying value) } & \text { (carrying value) } & \text { (fair value) } \\\hline \text { Cash } & \$ 600,000 & \$ 515,000 & \$ 515,000 \\\hline \text { Accounts Receivable } & \$ 140,000 & \$ 85,000 & \$ 85,000 \\\hline \text { Imventory } & \$ 60,000 & \$ 45,000 & \$ 60,000 \\\hline \text { Investment in Sub Inc. } & \$ 700,000 & & \\\hline \text { Equipment (net) } & \$ 50,000 & \$ 180,000 & \$ 185,000 \\\hline \text { Land } & & \$ 115,000 & \$ 200,000 \\\hline \text { Total Assets } & \$ 1,550,000 & \$ 940,000 & \\\hline \text { Current Liabilities } & \$ 100,000 & \$ 280,000 & \$ 280,000 \\\hline \text { Bonds Pay able } & \$ 160,000 & \$ 80,000 & \$ 60,000 \\\hline \text { Common Shares } & \$ 800,000 & \$ 410,000 & \\\hline \text { Retained Earnings } & \$ 490,000 & \$ 170,000 & \\\hline \text { Total Labilities and Equity } & \$ 1,550,000 & \$ 940,000 & \\\hline & & & \\\hline\end{array}$
The following are the financial statements for both companies for the fiscal year ended June 30, 2016:
Income Statements
$$\begin{array} { | l | l | l | } \hline \text { Sales } & \$ 800,000 & \$ 300,000 \\\hline \text { Investment Revenue } & \$ 21,000 & \\\hline \text { Less: Expenses: } & & \\\hline \text { Cost of Goods Sold } & \$ 240,000 & \$ 180,000 \\\hline \text { Depreciation } & \$ 10,000 & \$ 20,000 \\\hline \text { Interest Expense } & \$ 12,000 & \$ 40,000 \\\hline \text { Other Expenses } & \$ 8,000 & \$ 10,000 \\\hline \text { Net Income } & \$ 551,000 & \$ 50,000 \\\hline & & \\\hline\end{array}$$ Retained Earnings Statements
$\begin{array}{|l|l|l|}\hline \text { Balance, Juky 1,2015 } & \$ 490,000 & \$ 170,000 \\\hline \text { Net Income } & \$ 551,000 & \$ 50,000 \\\hline \text { Dividends } & \$(10,000) & \$(5,000) \\\hline \text { Balance, June 30, 201 } 6 & \$ 1,031,000 & \$ 215,000 \\\hline\end{array}$ Balance Sheets
$$\begin{array} { | l | l | l | } \hline & \text { Par Inc. } & \text { Sub Inc. } \\\hline & & \\\hline \text { Cash } & \$ 647,500 & \$ 665,000 \\\hline \text { Accounts Receivable } & \$ 250,000 & \$ 36,000 \\\hline \text { Investment in Sub } & \$ 717,500 & \\\hline \text { Inventory } & \$ 90,000 & \$ 46,000 \\\hline \text { Equipment (net) } & \$ 750,000 & \$ 170,000 \\\hline \text { Land } & & \$ 115,000 \\\hline \text { Total Assets } & \$ 2,455,000 & \$ 1,030,000 \\\hline & & \\\hline \text { Current Liabilities } & \$ 464,000 & \$ 325,000 \\\hline \text { Bonds Pay able } & \$ 160,000 & \$ 80,000 \\\hline \text { Common Shares } & \$ 800,000 & \$ 410,000 \\\hline \text { Retained Earnings } & \$ 1,031,000 & \$ 215,000 \\\hline \text { Total Labilities and Equiby } & \$ 2,455,000 & \$ 1,030,000 \\\hline & & \\\hline\end{array}$$ Both companies use a FIFO system, and Sub's entire inventory on the date of acquisition was sold during the following year. During 2015, Sub Inc. borrowed $10,000 in cash from Par Inc. interest free to finance its operations. Par uses the Equity Method to account for its investment in Sub Inc. Corp.

-Prepare a statement of changes in Non-Controlling Interest for the year ended June 30, 2016.

Question 54

The amount of goodwill appearing on Big Guy's consolidated balance sheet as at June 30, 2020 would be:

A) Nil.
B) $30,000.
C) $40,000.
D)$50,000.

Question 55

The net amount appearing on Big Guy's consolidated balance sheet for Equipment as at June 30, 2020 would be:

A) $872,000.
B) $878,600.
C) $881,800.
D)$885,000.

Question 56

The amount of Cash on Big Guy's consolidated balance sheet on June 30, 2020 would be:

A) $1,200,000.
B) $1,545,000.
C) $1,565,000.
D)$1,585,000.

Question 57

The amount of Accounts Receivable appearing on Big Guy's consolidated balance sheet as at June 30, 2020 would be:

A) $270,000.
B) $305,000.
C) $314,000.
D)$325,000.

Question 58

The amount of Common Shares appearing on Big Guy's consolidated balance sheet on June 30, 2020 would be:

A) $900,000.
B) $1,044,000.
C) $1,080,000.
D)$1,800,000.

Question 59

The amount of Bonds Payable appearing on Big Guy's consolidated balance sheet on June 30, 2020 would be:

A) $309,000.
B) $317,800.
C) $318,000.
D)$330,000.

Question 60

Par Inc. purchased 70% of the outstanding voting shares of Sub Inc. for $700,000 on July 1, 2015. On that date, Sub Inc. had common shares and retained earnings worth $410,000 and $170,000, respectively. The Equipment had a remaining useful life of 5 years from the date of acquisition. Sub's bonds mature on July 1, 2020. The inventory was sold in the year following the acquisition. Both companies use straight line amortization, and no salvage value is assumed for assets. Par Inc. and Sub Inc. declared and paid $10,000 and $5,000 in dividends, respectively during the year.
The balance sheets of both companies, as well as Sub's fair values immediately following the acquisition are shown below: $\begin{array}{|l|l|l|l|}\hline & \text { Par Inc. } & \text { Sub Inc. } & \text { Sub Inc. } \\\hline & \text { (carrying value) } & \text { (carrying value) } & \text { (fair value) } \\\hline \text { Cash } & \$ 600,000 & \$ 515,000 & \$ 515,000 \\\hline \text { Accounts Receivable } & \$ 140,000 & \$ 85,000 & \$ 85,000 \\\hline \text { Imventory } & \$ 60,000 & \$ 45,000 & \$ 60,000 \\\hline \text { Investment in Sub Inc. } & \$ 700,000 & & \\\hline \text { Equipment (net) } & \$ 50,000 & \$ 180,000 & \$ 185,000 \\\hline \text { Land } & & \$ 115,000 & \$ 200,000 \\\hline \text { Total Assets } & \$ 1,550,000 & \$ 940,000 & \\\hline \text { Current Liabilities } & \$ 100,000 & \$ 280,000 & \$ 280,000 \\\hline \text { Bonds Pay able } & \$ 160,000 & \$ 80,000 & \$ 60,000 \\\hline \text { Common Shares } & \$ 800,000 & \$ 410,000 & \\\hline \text { Retained Earnings } & \$ 490,000 & \$ 170,000 & \\\hline \text { Total Labilities and Equity } & \$ 1,550,000 & \$ 940,000 & \\\hline & & & \\\hline\end{array}$
The following are the financial statements for both companies for the fiscal year ended June 30, 2016:
Income Statements
$$\begin{array} { | l | l | l | } \hline \text { Sales } & \$ 800,000 & \$ 300,000 \\\hline \text { Investment Revenue } & \$ 21,000 & \\\hline \text { Less: Expenses: } & & \\\hline \text { Cost of Goods Sold } & \$ 240,000 & \$ 180,000 \\\hline \text { Depreciation } & \$ 10,000 & \$ 20,000 \\\hline \text { Interest Expense } & \$ 12,000 & \$ 40,000 \\\hline \text { Other Expenses } & \$ 8,000 & \$ 10,000 \\\hline \text { Net Income } & \$ 551,000 & \$ 50,000 \\\hline & & \\\hline\end{array}$$ Retained Earnings Statements
$\begin{array}{|l|l|l|}\hline \text { Balance, Juky 1,2015 } & \$ 490,000 & \$ 170,000 \\\hline \text { Net Income } & \$ 551,000 & \$ 50,000 \\\hline \text { Dividends } & \$(10,000) & \$(5,000) \\\hline \text { Balance, June 30, 201 } 6 & \$ 1,031,000 & \$ 215,000 \\\hline\end{array}$ Balance Sheets
$$\begin{array} { | l | l | l | } \hline & \text { Par Inc. } & \text { Sub Inc. } \\\hline & & \\\hline \text { Cash } & \$ 647,500 & \$ 665,000 \\\hline \text { Accounts Receivable } & \$ 250,000 & \$ 36,000 \\\hline \text { Investment in Sub } & \$ 717,500 & \\\hline \text { Inventory } & \$ 90,000 & \$ 46,000 \\\hline \text { Equipment (net) } & \$ 750,000 & \$ 170,000 \\\hline \text { Land } & & \$ 115,000 \\\hline \text { Total Assets } & \$ 2,455,000 & \$ 1,030,000 \\\hline & & \\\hline \text { Current Liabilities } & \$ 464,000 & \$ 325,000 \\\hline \text { Bonds Pay able } & \$ 160,000 & \$ 80,000 \\\hline \text { Common Shares } & \$ 800,000 & \$ 410,000 \\\hline \text { Retained Earnings } & \$ 1,031,000 & \$ 215,000 \\\hline \text { Total Labilities and Equiby } & \$ 2,455,000 & \$ 1,030,000 \\\hline & & \\\hline\end{array}$$ Both companies use a FIFO system, and Sub's entire inventory on the date of acquisition was sold during the following year. During 2015, Sub Inc. borrowed $10,000 in cash from Par Inc. interest free to finance its operations. Par uses the Equity Method to account for its investment in Sub Inc. Corp.

-Prepare Par's consolidated balance sheet as at the date of acquisition.

Question 61

Assume that Stanton's Equipment, Land and Trademark on the date of acquisition form part of a single asset group. Assume also that these assets are expected to generate future cash flows of $40,000. Does this mean that Stanton will have to recognize an impairment loss? Explain.

Question 62

Remburn Inc. Inc. purchased 90% of the outstanding voting shares of Stanton Inc. for $90,000 on January 1, 2015. On that date, Stanton Inc. had common shares and retained earnings worth $30,000 and $20,000, respectively. The equipment had a remaining useful life of 10 years from the date of acquisition. Stanton's trademark is estimated to have a remaining life of 5 years from the date of acquisition. Stanton's bonds mature on January 1, 2035. The inventory was sold in the year following the acquisition. Both companies use straight line amortization, and no salvage value is assumed for assets. Remburn Inc. and Stanton Inc. declared and paid $12,000 and $4,000 in dividends, respectively during the year.
The balance sheets of both companies, as well as Stanton's fair values on the date of acquisition are shown below: $\begin{array}{|l|l|l|l|}\hline & \text { (carry ing value) } & \text { (carrying value) } & \text { (fair value) } \\\hline \text { Cash } & \$ 400,000 & \$ 5,000 & \$ 5,000 \\\hline \text { Accounts Receivable } & \$ 240,000 & \$ 30,000 & \$ 30,000 \\\hline \text { Inventory } & \$ 60,000 & \$ 30,000 & \$ 50,000 \\\hline \text { Investment in Stanton Inc. } & \$ 90,000 & & \\\hline \text { Equipment (net) } & \$ 160,000 & \$ 25,000 & \$ 20,000 \\\hline \text { Land } & & \$ 20,000 & \$ 30,000 \\\hline \text { Trademark } & & \$ 10,000 & \$ 15,000 \\\hline \text { Total Assets } & \$ 950,000 & \$ 120,000 & \\\hline\\\hline \text { Current Liabilities } & \$ 500,000 & \$ 50,000 & \$ 50,000 \\\hline \text { Bonds Payable } & \$ 120,000 & \$ 20,000 & \$ 30,000 \\\hline \text { Common Shares } & \$ 200,000 & \$ 30,000 & \\\hline \text { Retained Earnings } & \$ 130,000 & \$ 20,000 & \\\hline \text { Total Liabilities and Equity } & \$ 950,000 & \$ 120,000 & \\\hline\end{array}$ The following are the financial statements for both companies for the fiscal year ended December 31, 2015:
Income Statements
$\begin{array}{l|l|l|}\hline\text { Sales } & \$ 295,750 & \$ 125,000 \\\hline \text { Dividend income } & \$ 3,600 & \\\hline \text { Less: Expenses: } & & \\\hline \text { Cost of Goods Sold } & \$ 200,000 & \$ 19,000 \\\hline \text { Depreciation } & \$ 10,000 & \$ 25,000 \\\hline \text { Interest Expense } & \$ 16,000 & \$ 36,000 \\\hline \text { Other Expenses } & \$ 5,000 & \$ 28,000 \\\hline \text { Gain on Sale of Land } & \$- & \$(8,000) \\\hline \text { Net Income } & \$ 68,350 & \$ 25,000 \\\hline\end{array}$ Retained Earnings Statements
$\begin{array}{|l|l|l|}\hline \text { Balance, J anuary 1, 2015 } & \$ 130,000 & \$ 20,000 \\\hline \text { Net Income } & \$ 68,350 & \$ 25,000 \\\hline \text { Dividends } & \$(12,000) & \$(4,000) \\\hline \text { Balance, Dec ember 31, 2015 } & \$ 186,350 & \$ 41,000 \\\hline\end{array}$ Balance Sheets
$$\begin{array} { | l | l | l | } \hline & \text { Rembum Inc } & \text { Stanton Inc. } \\\hline & & \\\hline \text { Cash } & \$ 190,950 & \$ 156,000 \\\hline \text { Accounts Receivable } & \$ 200,000 & \$ 150,000 \\\hline \text { Investment in Stanton Inc. } & \$ 90,000 & \\\hline \text { Inventory } & \$ 100,000 & \$ 30,000 \\\hline \text { Equipment (net) } & \$ 350,000 & \$ 25,000 \\\hline \text { Trademark } & & \$ 10,000 \\\hline \text { Total Assets } & \$ 930,950 & \$ 371,000 \\\hline & & \\\hline \text { Current Liabilities } & \$ 424,600 & \$ 280,000 \\\hline \text { Bonds Pay able } & \$ 120,000 & \$ 20,000 \\\hline \text { Common Shares } & \$ 200,000 & \$ 30,000 \\\hline \text { Retained Earnings } & \$ 186,350 & \$ 41,000 \\\hline \text { Total Labilities and Equity } & \$ 930,950 & \$ 371,000 \\\hline & & \\\hline\end{array}$$ Both companies use a FIFO system, and Stanton's entire inventory on the date of acquisition was sold during the following year. During 2015, Stanton Inc. borrowed $20,000 in cash from Remburn Inc. interest free to finance its operations. Remburn uses the Cost Method to account for its investment in Stanton Inc. Moreover, Stanton sold all of its land during the year for $18,000. Goodwill impairment for 2015 was determined to be $7,000. Remburn has chosen to value the non-controlling interest in Stanton on the acquisition date at the fair value of the subsidiary's identifiable net assets (parent company extension method).

-Prepare a consolidated balance sheet for Remburn Inc. as at December 31, 2015.

Question 63

Remburn Inc. Inc. purchased 90% of the outstanding voting shares of Stanton Inc. for $90,000 on January 1, 2015. On that date, Stanton Inc. had common shares and retained earnings worth $30,000 and $20,000, respectively. The equipment had a remaining useful life of 10 years from the date of acquisition. Stanton's trademark is estimated to have a remaining life of 5 years from the date of acquisition. Stanton's bonds mature on January 1, 2035. The inventory was sold in the year following the acquisition. Both companies use straight line amortization, and no salvage value is assumed for assets. Remburn Inc. and Stanton Inc. declared and paid $12,000 and $4,000 in dividends, respectively during the year.
The balance sheets of both companies, as well as Stanton's fair values on the date of acquisition are shown below: $\begin{array}{|l|l|l|l|}\hline & \text { (carry ing value) } & \text { (carrying value) } & \text { (fair value) } \\\hline \text { Cash } & \$ 400,000 & \$ 5,000 & \$ 5,000 \\\hline \text { Accounts Receivable } & \$ 240,000 & \$ 30,000 & \$ 30,000 \\\hline \text { Inventory } & \$ 60,000 & \$ 30,000 & \$ 50,000 \\\hline \text { Investment in Stanton Inc. } & \$ 90,000 & & \\\hline \text { Equipment (net) } & \$ 160,000 & \$ 25,000 & \$ 20,000 \\\hline \text { Land } & & \$ 20,000 & \$ 30,000 \\\hline \text { Trademark } & & \$ 10,000 & \$ 15,000 \\\hline \text { Total Assets } & \$ 950,000 & \$ 120,000 & \\\hline\\\hline \text { Current Liabilities } & \$ 500,000 & \$ 50,000 & \$ 50,000 \\\hline \text { Bonds Payable } & \$ 120,000 & \$ 20,000 & \$ 30,000 \\\hline \text { Common Shares } & \$ 200,000 & \$ 30,000 & \\\hline \text { Retained Earnings } & \$ 130,000 & \$ 20,000 & \\\hline \text { Total Liabilities and Equity } & \$ 950,000 & \$ 120,000 & \\\hline\end{array}$ The following are the financial statements for both companies for the fiscal year ended December 31, 2015:
Income Statements
$\begin{array}{l|l|l|}\hline\text { Sales } & \$ 295,750 & \$ 125,000 \\\hline \text { Dividend income } & \$ 3,600 & \\\hline \text { Less: Expenses: } & & \\\hline \text { Cost of Goods Sold } & \$ 200,000 & \$ 19,000 \\\hline \text { Depreciation } & \$ 10,000 & \$ 25,000 \\\hline \text { Interest Expense } & \$ 16,000 & \$ 36,000 \\\hline \text { Other Expenses } & \$ 5,000 & \$ 28,000 \\\hline \text { Gain on Sale of Land } & \$- & \$(8,000) \\\hline \text { Net Income } & \$ 68,350 & \$ 25,000 \\\hline\end{array}$ Retained Earnings Statements
$\begin{array}{|l|l|l|}\hline \text { Balance, J anuary 1, 2015 } & \$ 130,000 & \$ 20,000 \\\hline \text { Net Income } & \$ 68,350 & \$ 25,000 \\\hline \text { Dividends } & \$(12,000) & \$(4,000) \\\hline \text { Balance, Dec ember 31, 2015 } & \$ 186,350 & \$ 41,000 \\\hline\end{array}$ Balance Sheets
$$\begin{array} { | l | l | l | } \hline & \text { Rembum Inc } & \text { Stanton Inc. } \\\hline & & \\\hline \text { Cash } & \$ 190,950 & \$ 156,000 \\\hline \text { Accounts Receivable } & \$ 200,000 & \$ 150,000 \\\hline \text { Investment in Stanton Inc. } & \$ 90,000 & \\\hline \text { Inventory } & \$ 100,000 & \$ 30,000 \\\hline \text { Equipment (net) } & \$ 350,000 & \$ 25,000 \\\hline \text { Trademark } & & \$ 10,000 \\\hline \text { Total Assets } & \$ 930,950 & \$ 371,000 \\\hline & & \\\hline \text { Current Liabilities } & \$ 424,600 & \$ 280,000 \\\hline \text { Bonds Pay able } & \$ 120,000 & \$ 20,000 \\\hline \text { Common Shares } & \$ 200,000 & \$ 30,000 \\\hline \text { Retained Earnings } & \$ 186,350 & \$ 41,000 \\\hline \text { Total Labilities and Equity } & \$ 930,950 & \$ 371,000 \\\hline & & \\\hline\end{array}$$ Both companies use a FIFO system, and Stanton's entire inventory on the date of acquisition was sold during the following year. During 2015, Stanton Inc. borrowed $20,000 in cash from Remburn Inc. interest free to finance its operations. Remburn uses the Cost Method to account for its investment in Stanton Inc. Moreover, Stanton sold all of its land during the year for $18,000. Goodwill impairment for 2015 was determined to be $7,000. Remburn has chosen to value the non-controlling interest in Stanton on the acquisition date at the fair value of the subsidiary's identifiable net assets (parent company extension method).

-Prepare a statement of changes in Non-Controlling Interest for the year ended December 31, 2015.

Question 64

Remburn Inc. Inc. purchased 90% of the outstanding voting shares of Stanton Inc. for $90,000 on January 1, 2015. On that date, Stanton Inc. had common shares and retained earnings worth $30,000 and $20,000, respectively. The equipment had a remaining useful life of 10 years from the date of acquisition. Stanton's trademark is estimated to have a remaining life of 5 years from the date of acquisition. Stanton's bonds mature on January 1, 2035. The inventory was sold in the year following the acquisition. Both companies use straight line amortization, and no salvage value is assumed for assets. Remburn Inc. and Stanton Inc. declared and paid $12,000 and $4,000 in dividends, respectively during the year.
The balance sheets of both companies, as well as Stanton's fair values on the date of acquisition are shown below: $\begin{array}{|l|l|l|l|}\hline & \text { (carry ing value) } & \text { (carrying value) } & \text { (fair value) } \\\hline \text { Cash } & \$ 400,000 & \$ 5,000 & \$ 5,000 \\\hline \text { Accounts Receivable } & \$ 240,000 & \$ 30,000 & \$ 30,000 \\\hline \text { Inventory } & \$ 60,000 & \$ 30,000 & \$ 50,000 \\\hline \text { Investment in Stanton Inc. } & \$ 90,000 & & \\\hline \text { Equipment (net) } & \$ 160,000 & \$ 25,000 & \$ 20,000 \\\hline \text { Land } & & \$ 20,000 & \$ 30,000 \\\hline \text { Trademark } & & \$ 10,000 & \$ 15,000 \\\hline \text { Total Assets } & \$ 950,000 & \$ 120,000 & \\\hline\\\hline \text { Current Liabilities } & \$ 500,000 & \$ 50,000 & \$ 50,000 \\\hline \text { Bonds Payable } & \$ 120,000 & \$ 20,000 & \$ 30,000 \\\hline \text { Common Shares } & \$ 200,000 & \$ 30,000 & \\\hline \text { Retained Earnings } & \$ 130,000 & \$ 20,000 & \\\hline \text { Total Liabilities and Equity } & \$ 950,000 & \$ 120,000 & \\\hline\end{array}$ The following are the financial statements for both companies for the fiscal year ended December 31, 2015:
Income Statements
$\begin{array}{l|l|l|}\hline\text { Sales } & \$ 295,750 & \$ 125,000 \\\hline \text { Dividend income } & \$ 3,600 & \\\hline \text { Less: Expenses: } & & \\\hline \text { Cost of Goods Sold } & \$ 200,000 & \$ 19,000 \\\hline \text { Depreciation } & \$ 10,000 & \$ 25,000 \\\hline \text { Interest Expense } & \$ 16,000 & \$ 36,000 \\\hline \text { Other Expenses } & \$ 5,000 & \$ 28,000 \\\hline \text { Gain on Sale of Land } & \$- & \$(8,000) \\\hline \text { Net Income } & \$ 68,350 & \$ 25,000 \\\hline\end{array}$ Retained Earnings Statements
$\begin{array}{|l|l|l|}\hline \text { Balance, J anuary 1, 2015 } & \$ 130,000 & \$ 20,000 \\\hline \text { Net Income } & \$ 68,350 & \$ 25,000 \\\hline \text { Dividends } & \$(12,000) & \$(4,000) \\\hline \text { Balance, Dec ember 31, 2015 } & \$ 186,350 & \$ 41,000 \\\hline\end{array}$ Balance Sheets
$$\begin{array} { | l | l | l | } \hline & \text { Rembum Inc } & \text { Stanton Inc. } \\\hline & & \\\hline \text { Cash } & \$ 190,950 & \$ 156,000 \\\hline \text { Accounts Receivable } & \$ 200,000 & \$ 150,000 \\\hline \text { Investment in Stanton Inc. } & \$ 90,000 & \\\hline \text { Inventory } & \$ 100,000 & \$ 30,000 \\\hline \text { Equipment (net) } & \$ 350,000 & \$ 25,000 \\\hline \text { Trademark } & & \$ 10,000 \\\hline \text { Total Assets } & \$ 930,950 & \$ 371,000 \\\hline & & \\\hline \text { Current Liabilities } & \$ 424,600 & \$ 280,000 \\\hline \text { Bonds Pay able } & \$ 120,000 & \$ 20,000 \\\hline \text { Common Shares } & \$ 200,000 & \$ 30,000 \\\hline \text { Retained Earnings } & \$ 186,350 & \$ 41,000 \\\hline \text { Total Labilities and Equity } & \$ 930,950 & \$ 371,000 \\\hline & & \\\hline\end{array}$$ Both companies use a FIFO system, and Stanton's entire inventory on the date of acquisition was sold during the following year. During 2015, Stanton Inc. borrowed $20,000 in cash from Remburn Inc. interest free to finance its operations. Remburn uses the Cost Method to account for its investment in Stanton Inc. Moreover, Stanton sold all of its land during the year for $18,000. Goodwill impairment for 2015 was determined to be $7,000. Remburn has chosen to value the non-controlling interest in Stanton on the acquisition date at the fair value of the subsidiary's identifiable net assets (parent company extension method).

-Prepare Remburn's statement of consolidated retained earnings as at December 31, 2015.

Question 65

Assume that Stanton Inc.'s common shares had a fair market value of $51,000 on December 31, 2015. Assume also that the fair values of Stanton's identifiable net assets amounted to $36,000. Assuming that Rembrandt's fair values equaled its book values on the date of acquisition, has the consolidated Goodwill calculated above been impaired, and if so, by how much?

Question 66

Assume that Stanton had other Intangible assets with indefinite lives on its books at the date of acquisition. How would the impairment test differ from that which would apply to its amortizable assets, if at all? A simple explanation is required. Please do not use any numbers to support your answer.

Question 67

Remburn Inc. Inc. purchased 90% of the outstanding voting shares of Stanton Inc. for $90,000 on January 1, 2015. On that date, Stanton Inc. had common shares and retained earnings worth $30,000 and $20,000, respectively. The equipment had a remaining useful life of 10 years from the date of acquisition. Stanton's trademark is estimated to have a remaining life of 5 years from the date of acquisition. Stanton's bonds mature on January 1, 2035. The inventory was sold in the year following the acquisition. Both companies use straight line amortization, and no salvage value is assumed for assets. Remburn Inc. and Stanton Inc. declared and paid $12,000 and $4,000 in dividends, respectively during the year.
The balance sheets of both companies, as well as Stanton's fair values on the date of acquisition are shown below: $\begin{array}{|l|l|l|l|}\hline & \text { (carry ing value) } & \text { (carrying value) } & \text { (fair value) } \\\hline \text { Cash } & \$ 400,000 & \$ 5,000 & \$ 5,000 \\\hline \text { Accounts Receivable } & \$ 240,000 & \$ 30,000 & \$ 30,000 \\\hline \text { Inventory } & \$ 60,000 & \$ 30,000 & \$ 50,000 \\\hline \text { Investment in Stanton Inc. } & \$ 90,000 & & \\\hline \text { Equipment (net) } & \$ 160,000 & \$ 25,000 & \$ 20,000 \\\hline \text { Land } & & \$ 20,000 & \$ 30,000 \\\hline \text { Trademark } & & \$ 10,000 & \$ 15,000 \\\hline \text { Total Assets } & \$ 950,000 & \$ 120,000 & \\\hline\\\hline \text { Current Liabilities } & \$ 500,000 & \$ 50,000 & \$ 50,000 \\\hline \text { Bonds Payable } & \$ 120,000 & \$ 20,000 & \$ 30,000 \\\hline \text { Common Shares } & \$ 200,000 & \$ 30,000 & \\\hline \text { Retained Earnings } & \$ 130,000 & \$ 20,000 & \\\hline \text { Total Liabilities and Equity } & \$ 950,000 & \$ 120,000 & \\\hline\end{array}$ The following are the financial statements for both companies for the fiscal year ended December 31, 2015:
Income Statements
$\begin{array}{l|l|l|}\hline\text { Sales } & \$ 295,750 & \$ 125,000 \\\hline \text { Dividend income } & \$ 3,600 & \\\hline \text { Less: Expenses: } & & \\\hline \text { Cost of Goods Sold } & \$ 200,000 & \$ 19,000 \\\hline \text { Depreciation } & \$ 10,000 & \$ 25,000 \\\hline \text { Interest Expense } & \$ 16,000 & \$ 36,000 \\\hline \text { Other Expenses } & \$ 5,000 & \$ 28,000 \\\hline \text { Gain on Sale of Land } & \$- & \$(8,000) \\\hline \text { Net Income } & \$ 68,350 & \$ 25,000 \\\hline\end{array}$ Retained Earnings Statements
$\begin{array}{|l|l|l|}\hline \text { Balance, J anuary 1, 2015 } & \$ 130,000 & \$ 20,000 \\\hline \text { Net Income } & \$ 68,350 & \$ 25,000 \\\hline \text { Dividends } & \$(12,000) & \$(4,000) \\\hline \text { Balance, Dec ember 31, 2015 } & \$ 186,350 & \$ 41,000 \\\hline\end{array}$ Balance Sheets
$$\begin{array} { | l | l | l | } \hline & \text { Rembum Inc } & \text { Stanton Inc. } \\\hline & & \\\hline \text { Cash } & \$ 190,950 & \$ 156,000 \\\hline \text { Accounts Receivable } & \$ 200,000 & \$ 150,000 \\\hline \text { Investment in Stanton Inc. } & \$ 90,000 & \\\hline \text { Inventory } & \$ 100,000 & \$ 30,000 \\\hline \text { Equipment (net) } & \$ 350,000 & \$ 25,000 \\\hline \text { Trademark } & & \$ 10,000 \\\hline \text { Total Assets } & \$ 930,950 & \$ 371,000 \\\hline & & \\\hline \text { Current Liabilities } & \$ 424,600 & \$ 280,000 \\\hline \text { Bonds Pay able } & \$ 120,000 & \$ 20,000 \\\hline \text { Common Shares } & \$ 200,000 & \$ 30,000 \\\hline \text { Retained Earnings } & \$ 186,350 & \$ 41,000 \\\hline \text { Total Labilities and Equity } & \$ 930,950 & \$ 371,000 \\\hline & & \\\hline\end{array}$$ Both companies use a FIFO system, and Stanton's entire inventory on the date of acquisition was sold during the following year. During 2015, Stanton Inc. borrowed $20,000 in cash from Remburn Inc. interest free to finance its operations. Remburn uses the Cost Method to account for its investment in Stanton Inc. Moreover, Stanton sold all of its land during the year for $18,000. Goodwill impairment for 2015 was determined to be $7,000. Remburn has chosen to value the non-controlling interest in Stanton on the acquisition date at the fair value of the subsidiary's identifiable net assets (parent company extension method).

-Prepare a consolidated balance sheet for Par Inc. as at June 30, 2016.