On January 1, Year 5, KPU Co. purchased 80% of the outstanding common shares of UFV...
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On January 1, Year 5, KPU Co. purchased 80% of the outstanding common shares of UFV Co. for $12,000 in cash. On that date, the shareholders' equity of UFV consisted of $3,000 in common shares and $5,000 in retained earnings. For the year ended December 31, Year 10, the income statements for KPU and UFV were as follows: UFV $ 13,500 1,100 Sales Other Income Cost of goods sold Depreciation expense Other expenses Income tax expense Net income Cash and accounts receivables Inventory Property, plant and equipment Investment in Sub Total assets KPU $ 32,500 5,500 Liabilities Common shares Retained earnings Total liabilities and shareholders' equity 21,500 4,200 3,800 1,400 $ 7,100 At December 31, Year 10, the condensed balance sheets for the two companies were as follows: KPU $ 11,000 3,500 25,800 12,000 $ 52,300 8,900 2,100 1,000 500 $ 2,100 $ 33,300 6,000 13,000 $ 52,300 UFV $ 9,100 2,000 15,000 $ 26,100 $ 15,500 3,000 7,600 $ 26,100 Other information 1. On January 1, Year 5, UFV had inventory with a fair value that was $50 greater than its carrying value. 2. On January 1, Year 5, UFV had equipment with a fair value that was $300 higher than its carrying value. The equipment had an estimated remaining useful life of 6 years. 3. Each year, goodwill is evaluated to determine if there was an impairment loss. Goodwill had a recoverable value of $6,000 at December 31, Year 9 and $5,800 at December 31, Year 10. 4. During Year 10, UFV sold merchandise to KPU for $680, 70% of which remains in KPU's inventory at December 31, Year 10. On December 31, Year 9, the inventory of KPU contained $130 of merchandise purchased from UFV. UFV earns a gross margin of 25% on its sales. 5. On January 2, Year 7, UFV sold land to KPU for $1,500. UFV purchased the land on January 1, Year 3 for $900. In Year 10, KPU sold 20% of this land to an outsider. 6. During Year 10, KPU declared and paid dividends of $4,000, while UFV declared and paid dividends of $1,200. 7. KPU accounts for its investment in UFV using the cost method. 8. Both companies pay income tax at the rate of 30%. Required a. Calculate the consolidated net income for Year 10. b. Calculate the consolidated retained earnings at January 1, Year 10. c. Prepare the consolidated financial statements for the year ended December 31, Year 10. d. Prepare the working paper eliminating journal entries for the intercompany sale of inventory for Year 10. e. If KPU had used the Identifiable Net Asset method (see chapter 4), briefly explainwhether total shareholders' equity for Year 10 would increase, decrease, or not change. Hints: Goodwill = $6,650; AD left Dec. 31, Year 10 = $5,800; Consolidated NI = $8,013; Total consolidated assets $71,781 On January 1, Year 5, KPU Co. purchased 80% of the outstanding common shares of UFV Co. for $12,000 in cash. On that date, the shareholders' equity of UFV consisted of $3,000 in common shares and $5,000 in retained earnings. For the year ended December 31, Year 10, the income statements for KPU and UFV were as follows: UFV $ 13,500 1,100 Sales Other Income Cost of goods sold Depreciation expense Other expenses Income tax expense Net income Cash and accounts receivables Inventory Property, plant and equipment Investment in Sub Total assets KPU $ 32,500 5,500 Liabilities Common shares Retained earnings Total liabilities and shareholders' equity 21,500 4,200 3,800 1,400 $ 7,100 At December 31, Year 10, the condensed balance sheets for the two companies were as follows: KPU $ 11,000 3,500 25,800 12,000 $ 52,300 8,900 2,100 1,000 500 $ 2,100 $ 33,300 6,000 13,000 $ 52,300 UFV $ 9,100 2,000 15,000 $ 26,100 $ 15,500 3,000 7,600 $ 26,100 Other information 1. On January 1, Year 5, UFV had inventory with a fair value that was $50 greater than its carrying value. 2. On January 1, Year 5, UFV had equipment with a fair value that was $300 higher than its carrying value. The equipment had an estimated remaining useful life of 6 years. 3. Each year, goodwill is evaluated to determine if there was an impairment loss. Goodwill had a recoverable value of $6,000 at December 31, Year 9 and $5,800 at December 31, Year 10. 4. During Year 10, UFV sold merchandise to KPU for $680, 70% of which remains in KPU's inventory at December 31, Year 10. On December 31, Year 9, the inventory of KPU contained $130 of merchandise purchased from UFV. UFV earns a gross margin of 25% on its sales. 5. On January 2, Year 7, UFV sold land to KPU for $1,500. UFV purchased the land on January 1, Year 3 for $900. In Year 10, KPU sold 20% of this land to an outsider. 6. During Year 10, KPU declared and paid dividends of $4,000, while UFV declared and paid dividends of $1,200. 7. KPU accounts for its investment in UFV using the cost method. 8. Both companies pay income tax at the rate of 30%. Required a. Calculate the consolidated net income for Year 10. b. Calculate the consolidated retained earnings at January 1, Year 10. c. Prepare the consolidated financial statements for the year ended December 31, Year 10. d. Prepare the working paper eliminating journal entries for the intercompany sale of inventory for Year 10. e. If KPU had used the Identifiable Net Asset method (see chapter 4), briefly explainwhether total shareholders' equity for Year 10 would increase, decrease, or not change. Hints: Goodwill = $6,650; AD left Dec. 31, Year 10 = $5,800; Consolidated NI = $8,013; Total consolidated assets $71,781
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a To calculate the consolidated net income for Year 10 we need to eliminate the intercompany transactions and adjust for the noncontrolling interests ... View the full answer
Related Book For
Modern Advanced Accounting in Canada
ISBN: 978-1259087554
8th edition
Authors: Hilton Murray, Herauf Darrell
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