Canaan’s Curios Corp. (CCC) is a company located in Western Canada that reports its financial results in accordance with IFRS. CCC has acquired shares in Tymen Jungle Inc. (TJI).

TJI’s financial statements, together with additional pertinent information, follow:

Tymen Jungle Inc.

Statement of financial position

	As at December 31 (in ’000s)
	Carrying value		Fair value	Remaining useful life/term
	20X7	20X6	20X6	to maturity
Cash	$ 68	$ 35
Accounts receivable	75	48
Inventory	74	62	$ 68	N/A
Land	325	175	164	N/A
Building (net)	285	300	345	15 years
Equipment (net)	232	400	380	5 years
Patent	30	30	142	16 years
Total assets	$1,089	$1,050
Accounts payable	$ 52	$ 37
Notes payable	50	0
Long-term debt	300	400
Bonds payable	250	250	262	6 years
Common shares	180	180
Retained earnings	257	183
Total liabilities and equity	$1,089	$1,050

Tymen Jungle Inc.

Statement of comprehensive income

For the year ended December 31, 20X7

(in ’000s)

Sales revenue $ 885

Cost of goods sold 440

Gross profit 445

Sales, general, and administrative expenses 361

Interest expense 27

Depreciation and amortization expense 25

32

Other income 135

Earnings before income tax expense 167

Income tax expense 33

Net income $ 134

Intercompany transactions:

• On December 31, 20X6, CCC paid $125,000 cash to acquire 25% of TJI’s outstanding common shares.
• CCC provided management services to TJI during the entire year. TJI paid $4,500 per month for this service. At December 31, 20X7, the amount owing for the services provided in December 20X7 remained unpaid.
• TJI rented a building to CCC for $7,000 per month. CCC rented the building for the entire year. At December 31, 20X7, CCC owed TJI $14,000 for November and December’s rent.

Land sale:

• On December 31, 20X7, CCC sold land to TJI for $150,000. CCC’s net book value at time of sale was $100,000, which was the same as the estimated fair value at the acquisition date of the shares of TJI (December 31, 20X6). In consideration of the transfer, TJI paid $100,000 cash and signed a note payable to CCC for the $50,000 balance. The note is payable in full on December 31, 20X8. Interest at 5% per annum, which is the market rate of interest for an obligation of this nature, is first payable on December 31, 20X8.

Inventory sales:

• During 20X7, CCC sold $125,000 of inventory to TJI. CCC’s cost of the inventory was $95,000. 25% of these goods remained unsold by TJI as at December 31, 20X7.
• During 20X7, TJI sold goods that it had purchased for $150,000 to CCC for

$210,000; 35% of these goods remained unsold by CCC as at December 31, 20X7.

TJI purchased new equipment on January 1, 20X7, and immediately sold it to CCC for $70,000 cash. TJI’s carrying value of the equipment, which had a remaining useful life of five years, was $44,000.

Additional information:

1. Both companies pay income tax at a rate of 30%.

1. Both companies use the first in, first out (FIFO) cost-flow assumption to value their inventories.

1. Both companies depreciate their depreciable assets on a straight-line basis.

1. The fair value increment on the bonds is amortized using the straight-line method.

1. For impairment-testing purposes, CCC established that TJI is a cash-generating unit (CGU). CCC tested TJI for impairment on December 31, 20X7, and the investment was found to be impaired by $3,500.

1. CCC and TJI only prepare accruals and other adjusting entries at year end.

Required:

1. Prepare journal entries to record CCC’s acquisition of its interest in TJI in 20X6 and all events during 20X7 that affect CCC’s Investment in TJI account. Ensure that you provide support for your calculations. Also remember to provide a brief explanation for each journal entry as to its nature.

1. Independent of part (a), assume that on December 31, 20X9, the balance of CCC’s

Investment in TJI account was $140,000. All the results of TJI’s activities during 20X9 are included in this amount. At the end of 20X9, CCC owned 25% of the common shares of TJI.

Two independent scenarios follow. In each one, the amount paid or received represents the fair market value of the ownership stake purchased

. Remember to support the journal entries with a brief explanation as to their nature.

1. On December 31, 20X9, CCC purchased an additional 20% of the outstanding common shares of TJI for $130,000 cash. Based on this purchase, calculate what impact this transaction had on CCC’s ownership and prepare the journal entries that CCC would record for this transaction.

1. On December 31, 20X9, CCC purchased an additional 30% of the outstanding common shares of TJI for $195,000 cash. Based on this purchase, calculate what impact this transaction had on CCC’s ownership and prepare the journal entries that CCC would record for this transaction.

Answer rating: 100% (QA)

1 A JE and Calcs Investment in the associate 125000 Less Book value of ... View the full answer