Question

P6-7 You are given the following details for the year ended December 31, 2013:
Additional information:
1. Grantham owns 80% of the common shares in Lopez and 20% of the common shares in Ceylon (enough to cause Grantham to have significant influence over Ceylon).
2. On January 1, 2012, all identifiable assets and liabilities of Lopez were recorded at fair value. Lopez’s retained earnings at that date were $10,000 and the capital stock was $5,000. Grantham purchased 80% of Lopez’s shares on January 1, 2012, and paid $5,000 for goodwill, none of which had been recorded on Lopez’s records. Grantham uses the partial goodwill method.
3. At the date Grantham acquired its shares in Ceylon, Ceylon’s recorded equity was:
Share capital ......... $100,000
Retained earnings ....... 20,000
All the identifiable assets and liabilities of Ceylon were recorded at fair value. Grantham paid $25,000 for its shares in Ceylon on January 1, 2012.
4. Included in the beginning inventory of Grantham were income before tax made by Lopez: $5,000; and Ceylon: $3,000.
5. Included in the ending inventory of Lopez were profits before tax made by Ceylon: $4,000.
6. Ceylon had recorded a profit (net of $500 tax) of $2,000 in selling certain non-current assets to Grantham on July 1, 2013. Grantham treats the items as non-current assets and charges depreciation straight line over four years from that date.
7. Grantham purchased for $10,000 an item of plant from Lopez on March 1, 2012. The asset’s carrying amount at that date was $7,000. The asset was depreciated at the rate of 20% p.a. straight-line from March 1, 2012.
8. Dividend revenue is recognized when dividends are declared.
9. The tax rate is 30%.
Required
(a) Calculate the share of profit or loss in Ceylon on the consolidated financial statements for the year ended December 31, 2013.
(b) Calculate the balance in the Investment in Ceylon account on the statement of financial position as at December 31, 2013.
(c) Calculate the consolidated retained earnings as at December 31, 2013.


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  • CreatedJune 09, 2015
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