Dandy Delicious Drinks (DDD) was incorporated in 2001 by Patrick and Mary VanPelt. The company is headquartered in Victoria, BC, where it manufactures fruit and vegetable juices that are distributed to retail stores across Canada. Awareness around the health benefits of juicing began to increase about 12 years ago, and since then, the company has grown significantly.

The VanPelts have three adult children, Brayden, Britney, and Ben. All three became actively involved in the business after they completed university degrees. In 2015, Patrick and May decided they wanted to slow down and turned the company’s operations over to the children. Being much younger and more energetic, the children wanted to grow the company significantly and considered taking it public within the next 5-10 years. To that end, DDD has invested in other businesses to diversify the company’s products and locations. Brayden is heading up the acquisitions, Britney is overseeing the finances, and Ben oversees the day-to-day operations in Victoria.

The siblings are seeking financing through banks and private lenders to continue their expansion plans. All potential lenders want to see audited consolidated financial statements for the fiscal year ending September 30, 2021. Britney holds a Bachelor of Commerce degree in finance and knows that preparing consolidated statements is well beyond her abilities and those of their staff. As such, they have hired you to oversee the process and assist with the more complex accounting issues.

Brayden and Ben do not understand why the consolidation process is so complex. To their way of thinking, all that is required is to add up the accounts from the company and its subsidiaries. Britney would like you to explain the purpose of consolidating and the reason(s) why the process can be more complex than simply adding up the accounts of all the companies. She believes it would be better for you to explain this to them since she often has difficulty communicating with her brothers in a way that they understand.

The following is a summary of the various investments DDD holds.

Bountiful Vitality Juices (BVJ)

The siblings wanted to expand into the US market; however, receiving approval for new products from the Food and Drug Administration is a difficult and lengthy process. Early in 2020, Brayden found a successful company based in Seattle, Washington, called Bountiful Vitality Juices (BVJ). The company sells citrus-based fruit juices like lemonades, orange juices, etc. It was built from scratch by a couple, Kim and Kelly Farrell, who was looking to sell the company. They liked that DDD was family-owned and operated and agreed to the sale. On October 1, 2020, DDD purchased all the outstanding shares of BVJ for US$6,550,000. Kim and Kelly were heavily involved with the business and so to fill that gap, Ben and other managers from DDD have been traveling to California extensively to provide management oversight.

BVJ had a significant operating line of credit, which carried a very high-interest rate. Management of DDD was unable to successfully negotiate lower rates or to find new financing in the US at an acceptable rate. To improve profitability, on October 1, 2020, DDD borrowed funds and loaned them to BVJ, which used the money to repay the bank indebtedness that existed at acquisition. Financial statements and additional information about BVJ are included in Exhibit I.

Liberty Wholesome Snacks (LWS)

In 2017, the siblings purchased a company, Liberty Wholesome Snacks (LWS), which develops, produces, and sells healthy snack foods. The company currently sells a variety of energy and protein bars along with a variety of dried fruit and vegetable snacks. DDD purchased 80% of the shares of Liberty Wholesome Snacks (LWS) for $8,000,000 on October 1, 2017. An organic farmer owns the remaining shares. The farmer supplies LWS with a variety of fruits and vegetables used in the production of its products. Additional information related to LWS, along with the financial statements is provided in Exhibit II.

RJ Packaging (RJP)

DDD purchased a 30% interest in RJ Packaging (RJP) on September 30, 2018. RJP manufactures plastic and glass bottles, which DDD uses for many of its products. RJP is working on a process to use recycled materials in its plastic. DDD purchased an equity interest both to retain some influence over its supply of bottles but also because it wants to share in the growth potential of the new product RJP is working on. Information on the purchase and activities up to September 30, 2021, is contained in Exhibit III. You may assume the effective tax rate for all companies is 20%.

Prepare a package for the auditors.

Part I

1. Analyze the investment in RJ Packaging and adjust the financial statements of DDD as needed. Hint: consider how RJP was recorded in the financial statements of DDD and then determine the correct treatment. Your analysis should break down the adjustment for prior years and the current year.

2. Once you have adjusted DDD’s financial statements for the error in RJP, prepare the worksheet for consolidating DDD and Liberty Wholesome Snacks (LWS).

3. Prepare the eliminating entries for the consolidation of LWS. Make sure to reference the journal entries in your working papers.

4. For September 30, 2021, financial statements prepared above, prepare separate supporting calculations for:

Consolidated Net Income attributable to the parent and to NCI, Consolidated Retained Earnings, and Non-controlling Interest on the statement of financial position.

5. A properly formatted Consolidated Statement of Financial Position as of September 30, 2021 (comparative totals are not required) and a properly formatted Consolidated Income Statement and Statement of Retained Earnings for the year ending September 30, 2021 (comparative totals are not required).

Prepare for the owners your analysis and comments to explain why the consolidated statements are not simply a sum of the individual company’s account balances.

Part II

1. Assuming the functional currency is Canadian dollars, translate the foreign subsidiary’s financial statements on September 30, 2021.

2. Assuming the functional currency is not Canadian dollars, translate the foreign subsidiary’s financial statements on September 30, 2021.

3. While you will not be consolidating the translated financial statements of the foreign the subsidiary, Calculate the goodwill at acquisition, in Canadian dollars.

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Exhibit I- BVJ information DDD purchased 100% of the outstanding shares of Bountiful Vitality Juices (BVJ) for USD $6,550,000 on October 1, 2020. Both parties agreed to use the financial statements at September 30, 2020 for the acquisition given there are no transactions between September 30, 2020 and October 1, 2020. At acquisition date, all the fair values were equal to the book values with the exception of: Accounts Receivable Inventory Property and Equipment Land Customer list (internally generate - no corresponding book value) Fair value in USDS $3,413,000 ৪,100,000 4,300,000 3,800,000 150,000 The equipment, at acquisition, had a remaining useful life of 7 years. The customer list had a 10-year useful life at the time the company was acquired. Inventory turns over 5 times a year and accounts receivable turns over 8 times a year. The direct exchange rate at acquisition is $1 US = $1.345. All exchange rates are quoted to reflect the value of $1 US dollar equal to Canadian $. On January 31, 2021, the company sold a parcel of land, to an unrelated third party, for USS1,114,750 when the exchange rate was $1.36. The land originally cost US$750,000 and was purchased by BVJ in 2011 when the exchange rate was $1.002. On June 30, 2021, additional equipment was purchased for US$797,750. Depreciation expense on the new equipment for 2021 was US $169,900. The remainder of depreciation expense recorded relates to the equipment acquired in the initial purchase. Exhibit I- BVJ information DDD purchased 100% of the outstanding shares of Bountiful Vitality Juices (BVJ) for USD $6,550,000 on October 1, 2020. Both parties agreed to use the financial statements at September 30, 2020 for the acquisition given there are no transactions between September 30, 2020 and October 1, 2020. At acquisition date, all the fair values were equal to the book values with the exception of: Accounts Receivable Inventory Property and Equipment Land Customer list (internally generate - no corresponding book value) Fair value in USDS $3,413,000 ৪,100,000 4,300,000 3,800,000 150,000 The equipment, at acquisition, had a remaining useful life of 7 years. The customer list had a 10-year useful life at the time the company was acquired. Inventory turns over 5 times a year and accounts receivable turns over 8 times a year. The direct exchange rate at acquisition is $1 US = $1.345. All exchange rates are quoted to reflect the value of $1 US dollar equal to Canadian $. On January 31, 2021, the company sold a parcel of land, to an unrelated third party, for USS1,114,750 when the exchange rate was $1.36. The land originally cost US$750,000 and was purchased by BVJ in 2011 when the exchange rate was $1.002. On June 30, 2021, additional equipment was purchased for US$797,750. Depreciation expense on the new equipment for 2021 was US $169,900. The remainder of depreciation expense recorded relates to the equipment acquired in the initial purchase.

Answer rating: 100% (QA)

Consolidated financial statement adjustments Consolidated financial statements are fiscal summaries of an element with various divisions or auxiliaries Organizations can regularly utilize the word sol... View the full answer