In January 20X3, Paris Ink Company (Paris) purchased 80% of the common shares of Slade Paper Ltd.
Question:
1. The fair market value (FMV) of inventory was greater than carrying value by $ 50,000.
2. The FMV of capital assets had replacement cost that exceeded net carrying value (NCV) by $ 120,000, although net realizable value exceeded NCV by only $ 60,000 (management planned to retain the capital assets throughout their remaining useful life of 12 years).
3. Although the NCV of Slades bonds payable was $ 400,000, the FMV was $ 460,000, due to a decline in the interest rates since the bonds were originally issued. The bonds payable mature on December 31, 20X8, and have a nominal rate of interest of 12%. The companies use straight-line amortization for bond premiums and discounts.
The financial statements for Paris and Slade for the year ended December 31, 20X5, are presented in Exhibit B. Additional information on transactions between Paris and Slade is presented in Exhibit C. Exhibit B Financial Statements
Statements of Comprehensive Income
For the Year Ended December 31, 20X5
Statements of Financial Position
As at December 31, 20X5
Exhibit C
Additional Information
1. On July 1, 20X5, Paris advanced Slade $ 200,000, due on July 1, 20X6. Interest of 8% is due at maturity.
2. Intercompany sales from Slade to Paris were as follows for 20X3 20X5:
All amounts in closing inventory at the end of each year were sold during the first four months of the following year.
3. On March 1, 20X5, Slade sold land to Paris for $ 300,000. The original cost of the land was $ 200,000. Assume this transaction was taxed at the companys normal tax rate.
4. During 20X5, Paris sold inventory to Slade for $ 108,000, which represented a markup of 35% above cost. At December 31, 20X5, 20% of these goods remained in inventory.
5. During 20X5, Paris paid dividends of $ 250,000 and Slade paid dividends of $ 50,000.
6. Paris and Slade pay taxes at 40% and 25% rates, respectively.
Required
1. Calculate the carrying value of the goodwill on the consolidated financial statements of Paris Ink Company at December 31, 20X5. Paris tests goodwill for impairment on an annual basis.
2. Prepare a consolidated SCI for Paris Ink Company for the year ended December 31, 20X5.
3. Calculate the following balances for Paris Ink Companys consolidated statement of financial position as at December 31, 20X5:
a) Inventory
b) Non-controllinginterest
Goodwill is an important concept and terminology in accounting which means good reputation. The word goodwill is used at various places in accounting but it is recognized only at the time of a business combination. There are generally two types of... Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
Step by Step Answer:
Advanced Financial Accounting
ISBN: 978-0137030385
6th edition
Authors: Thomas Beechy, Umashanker Trivedi, Kenneth MacAulay