Meek's Penguin Corp. (MPC) is a Canadian company that reports its financial results in accordance with...

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Meek's Penguin Corp. (MPC) is a Canadian company that reports its financial results in accordance with IFRS. On December 31, 20X6, MPC paid $720,000 cash to acquire 70% of Zoebug Supply Inc.'s (ZSI) outstanding common shares. ZS's comparative statement of financial position as at December 31, 20X7, and its statement of comprehensive income for the year ended December 31, 20X7, follow: Zoebug Supply Inc. Statement of financial position As at December 31 (in '000s) 20X6 $ 175 $ 61 406 20X7 Cash Accounts receivable and accruals 521 Inventory 192 183 Note receivable 150 220 240 160 100 $1.566 $1,370 Land 80 Building (net) Equipment (net) Trademark 228 120 100 Total assets $ 235 $ 264 600 300 206 21.370 Accounts payable and accruals Long-term debt 600 300 431 Common shares Retained earnings Total liabilities and equity $1.566 Zoebug Supply Inc. Statement of comprehensive income For the year ended December 31, 20X7 (in '000s) $1,820 845 975 533 30 52 360 190 550 165 $ 385 Sales revenue Cost of goods sold Gross profit Sales, general, and administrative expenses Interest expense Depreciation and amortization expense Other income Earnings before income tax expense Income tax expense Net income The fair value of Zsi's identifiable net assets at time of acquisition differed from its book value as indicated below (in $000s): Estimated Book value Dec. 31, 20X6 Fair value Dec. 31, 20X6 remaining useful life/term to Estimated maturity residual value Inventory Land Building (net) Equipment (net) Trademark Long-term debt 183 220 240 160 100 600 213 N/A N/A N/A 390 200 176 300 620 N/A 20 years 4 years N/A 4 years so N/A Additional information: 1. Both companies pay income tax at a rate of 30% 2. Both companies use the FIFO cost-flow assumption to value their inventories. 3. Both companies depreciate their depreciable assets on a straight-line basis. 4. The fair value increment on the long-term debt is amortized using the straight-line method. 5. For impairment-testing purposes, MPC established that ZSl is a CGU. MPC tested the CGU for impairment on December 31, 20X7. Goodwill, as calculated using the identifiable net assets (INA) method, was found to be impaired by $18,000. 6. On December 31, 20X7, ZSI sold land to MPC for $155,000. ZS's net book value at time of sale was $140,000, which was the same as the estimated fair value at acquisition date of the subsidiary (December 31, 20X6). In consideration of the transfer, MPC paid $5,000 cash and signed a note payable to ZSI for the $150,000 balance. The note is payable in full on December 31, 20X9. Interest at 4% per annum, payable annually, is first payable on December 31, 20X8. This is the market rate of interest for a note of this length. 7. During 20X7, MPC sold goods to ZSI for $200,000 with a 40% gross profit margin; 10% of these goods remained unsold by ZSI as at December 31, 20X7. 8. During 20X7, ZSI sold goods that it had purchased for $100,000 to MPC for $140,000: 25% of these goods remained unsold by MPC as at December 31, 20X7. 9. During 20X7, ZSI rented office space from MPC at a total cost of $50,000. This amount remained unpaid at year end. 10. MPC purchased new oquipment on January 1, 20X7 and immediately sold it to ZSı for $40,000 cash. MPC's cost of the equipment, which had a useful life of five years, was $36,000. 11. MPC and ZSI only prepare accruals and other adjusting entries at year end. MPC's non-consolidated comparative statement of financial position as at December 31, 20X7, and its non-consolidated statement of comprehensive income for the year ended December 31, 20X7, are set out below:. Meek's Penguin Corp. Statement of financial position As at December 31 (in '000s) 20X7 20X6 8 968 422 640 1,041 632 650 720 $5.081 $ 313 1,020 466 790 Cash Accounts receivable and accruals Inventory Land 989 Building (net) Equipment (net) Trademark Investment Total assets 474 650 720 $5.422 $ 722 1,875 150 500 2.175 $5.422 $ 669 1,950 Accounts payable and accruals Long-term debt Note payable Common shares Retained earnings Total liabilities and equity 500 1,962 $5.081 Meek's Penguin Corp. Statement of comprehensive income For the year ended December 31, 20X7 (in '000s) Sales revenue Cost of goods sold Gross profit Sales, general, and administrative expenses Interest expense Depreciation and amortization expense $2,498 647 1,851 1,174 90 215 372 218 590 177 413 Other income Earnings before income tax expense Income tax expense Net income Required: a) Use the acquisition method to allocate the acquisition differential and determine goodwill arising on acquisition, assuming that MPC uses the INA method to value the non-controlling interest (NCI). (2 marks) b) Use the acquisition method to allocate the acquisition differential and determine goodwill arising on acquisition, assuming that MPC uses the fair value enterprise (FVE) method to value the NCI. (2 marks) c) Based on the solution to part (a) (where MPC uses the INA method to value the NCI), prepare an acquisition differential amortization and impairment schedule for 20X7. Provide references for each line in the AD schedule that will be used to reference through to the consolidated financial statements. (2 marks) d) Prepare a list of all intercompany transactions and balances that are pertinent to the case facts and should be eliminated upon consolidation, Hint: There are six intercompany transactions that should be eliminated, five of which have two applicable parts (for example, note receivable/note payabie = one intercompany transaction). (0.5 marks) e) Calculate all unrealized and realized intercompany profits. (3.5 marks) • Provide references for each line in both the schedule of intercompany transactions and the schedule of unrealized/realized intercompany profits that will be used to reference through to the consolidated financial statements. • Include a calculation of the total deferred tax assetliability. Indicate whether the calculated figure is an asset or a liability. For parts (f) through (i), assume that MPC uses the INA method to value the NCI. Calculations done in earlier sections of Question 3 do not need to be redone on these worksheets. ) Prepare MPC's consolidated statement of comprehensive income for the year ended December 31, 20X7. Show the allocation between the parent and NCI. Include references to your supporting calculations, which will typically be the references in the supporting schedules prepared in parts (a) through € of Question 3. (6 marks) Note: From the Project Data file, copy and paste the template in the worksheet titled "Q3 Consolidated SCI 20X7" found in the Prep-AFR-ASNO6-WO0.DAT.1.G Excel file into your project submission. 9) Prepare MPC's consolidated statement of retained earnings for the year ended December 31, 20X7. (1 mark) h) Calculate the NCI on the statement of financial position as at December 31, 20X7. (1 mark) ) Prepare MPC's consolidated statement of financial position as at December 31, 20X7. Include references to your supporting calculations, which will typically be the references in the supporting schedules prepared in parts (a) through (h) of Question 3. (4 marks) Meek's Penguin Corp Consolidated statement of comprehensive income As at December 31, 20X7 MPC ZSI ADJ ADJ ADJ ADJ ADJ Consolidated Reference(s) Sales revenue 2,498,000 1,820,000 Cost of goods sold 647,000 845,000 1,851,000 1,174,000 Gross profit 975,000 Sales, general, and administrative expenses 533,000 Interest expense 90,000 30,000 Depreciation and amortization expense 215,000 52,000 Goodwill impairment loss 372,000 360,000 Other income 218,000 190,000 Earnings before taxes 590,000 550,000 Income tax expense 177,000 165,000 Consolidated net income 413,000 385,000 Meek's Penguin Corp. Consolidated statement of financial position For the year ended December 31 , 20X7 MPC ZSI ADJ ADJ ADJ Consolidated Reference(s) Cash 313,000 175.000 Accounts receivable and accruals 1,020,000 521,000 466,000 192,000 Inventory Note receivable 150.000 Land 790,000 80,000 228,000 120,000 Buildings (net) 989,000 Equipment (net) 474,000 Trademark 650,000 100,000 Investment 720,000 Deferred income tax asset Goodwill Total assets 5,422,000 1,566,000 Accounts payable and accruals 722,000 235,000 Long-term debt Note payable 1,875,000 600,000 150,000 Common shares 500,000 300,000 Retained earnings 2,175,000 431,000 Non-controlling interest 5,422,000 1,566,000 Meek's Penguin Corp. (MPC) is a Canadian company that reports its financial results in accordance with IFRS. On December 31, 20X6, MPC paid $720,000 cash to acquire 70% of Zoebug Supply Inc.'s (ZSI) outstanding common shares. ZS's comparative statement of financial position as at December 31, 20X7, and its statement of comprehensive income for the year ended December 31, 20X7, follow: Zoebug Supply Inc. Statement of financial position As at December 31 (in '000s) 20X6 $ 175 $ 61 406 20X7 Cash Accounts receivable and accruals 521 Inventory 192 183 Note receivable 150 220 240 160 100 $1.566 $1,370 Land 80 Building (net) Equipment (net) Trademark 228 120 100 Total assets $ 235 $ 264 600 300 206 21.370 Accounts payable and accruals Long-term debt 600 300 431 Common shares Retained earnings Total liabilities and equity $1.566 Zoebug Supply Inc. Statement of comprehensive income For the year ended December 31, 20X7 (in '000s) $1,820 845 975 533 30 52 360 190 550 165 $ 385 Sales revenue Cost of goods sold Gross profit Sales, general, and administrative expenses Interest expense Depreciation and amortization expense Other income Earnings before income tax expense Income tax expense Net income The fair value of Zsi's identifiable net assets at time of acquisition differed from its book value as indicated below (in $000s): Estimated Book value Dec. 31, 20X6 Fair value Dec. 31, 20X6 remaining useful life/term to Estimated maturity residual value Inventory Land Building (net) Equipment (net) Trademark Long-term debt 183 220 240 160 100 600 213 N/A N/A N/A 390 200 176 300 620 N/A 20 years 4 years N/A 4 years so N/A Additional information: 1. Both companies pay income tax at a rate of 30% 2. Both companies use the FIFO cost-flow assumption to value their inventories. 3. Both companies depreciate their depreciable assets on a straight-line basis. 4. The fair value increment on the long-term debt is amortized using the straight-line method. 5. For impairment-testing purposes, MPC established that ZSl is a CGU. MPC tested the CGU for impairment on December 31, 20X7. Goodwill, as calculated using the identifiable net assets (INA) method, was found to be impaired by $18,000. 6. On December 31, 20X7, ZSI sold land to MPC for $155,000. ZS's net book value at time of sale was $140,000, which was the same as the estimated fair value at acquisition date of the subsidiary (December 31, 20X6). In consideration of the transfer, MPC paid $5,000 cash and signed a note payable to ZSI for the $150,000 balance. The note is payable in full on December 31, 20X9. Interest at 4% per annum, payable annually, is first payable on December 31, 20X8. This is the market rate of interest for a note of this length. 7. During 20X7, MPC sold goods to ZSI for $200,000 with a 40% gross profit margin; 10% of these goods remained unsold by ZSI as at December 31, 20X7. 8. During 20X7, ZSI sold goods that it had purchased for $100,000 to MPC for $140,000: 25% of these goods remained unsold by MPC as at December 31, 20X7. 9. During 20X7, ZSI rented office space from MPC at a total cost of $50,000. This amount remained unpaid at year end. 10. MPC purchased new oquipment on January 1, 20X7 and immediately sold it to ZSı for $40,000 cash. MPC's cost of the equipment, which had a useful life of five years, was $36,000. 11. MPC and ZSI only prepare accruals and other adjusting entries at year end. MPC's non-consolidated comparative statement of financial position as at December 31, 20X7, and its non-consolidated statement of comprehensive income for the year ended December 31, 20X7, are set out below:. Meek's Penguin Corp. Statement of financial position As at December 31 (in '000s) 20X7 20X6 8 968 422 640 1,041 632 650 720 $5.081 $ 313 1,020 466 790 Cash Accounts receivable and accruals Inventory Land 989 Building (net) Equipment (net) Trademark Investment Total assets 474 650 720 $5.422 $ 722 1,875 150 500 2.175 $5.422 $ 669 1,950 Accounts payable and accruals Long-term debt Note payable Common shares Retained earnings Total liabilities and equity 500 1,962 $5.081 Meek's Penguin Corp. Statement of comprehensive income For the year ended December 31, 20X7 (in '000s) Sales revenue Cost of goods sold Gross profit Sales, general, and administrative expenses Interest expense Depreciation and amortization expense $2,498 647 1,851 1,174 90 215 372 218 590 177 413 Other income Earnings before income tax expense Income tax expense Net income Required: a) Use the acquisition method to allocate the acquisition differential and determine goodwill arising on acquisition, assuming that MPC uses the INA method to value the non-controlling interest (NCI). (2 marks) b) Use the acquisition method to allocate the acquisition differential and determine goodwill arising on acquisition, assuming that MPC uses the fair value enterprise (FVE) method to value the NCI. (2 marks) c) Based on the solution to part (a) (where MPC uses the INA method to value the NCI), prepare an acquisition differential amortization and impairment schedule for 20X7. Provide references for each line in the AD schedule that will be used to reference through to the consolidated financial statements. (2 marks) d) Prepare a list of all intercompany transactions and balances that are pertinent to the case facts and should be eliminated upon consolidation, Hint: There are six intercompany transactions that should be eliminated, five of which have two applicable parts (for example, note receivable/note payabie = one intercompany transaction). (0.5 marks) e) Calculate all unrealized and realized intercompany profits. (3.5 marks) • Provide references for each line in both the schedule of intercompany transactions and the schedule of unrealized/realized intercompany profits that will be used to reference through to the consolidated financial statements. • Include a calculation of the total deferred tax assetliability. Indicate whether the calculated figure is an asset or a liability. For parts (f) through (i), assume that MPC uses the INA method to value the NCI. Calculations done in earlier sections of Question 3 do not need to be redone on these worksheets. ) Prepare MPC's consolidated statement of comprehensive income for the year ended December 31, 20X7. Show the allocation between the parent and NCI. Include references to your supporting calculations, which will typically be the references in the supporting schedules prepared in parts (a) through € of Question 3. (6 marks) Note: From the Project Data file, copy and paste the template in the worksheet titled "Q3 Consolidated SCI 20X7" found in the Prep-AFR-ASNO6-WO0.DAT.1.G Excel file into your project submission. 9) Prepare MPC's consolidated statement of retained earnings for the year ended December 31, 20X7. (1 mark) h) Calculate the NCI on the statement of financial position as at December 31, 20X7. (1 mark) ) Prepare MPC's consolidated statement of financial position as at December 31, 20X7. Include references to your supporting calculations, which will typically be the references in the supporting schedules prepared in parts (a) through (h) of Question 3. (4 marks) Meek's Penguin Corp Consolidated statement of comprehensive income As at December 31, 20X7 MPC ZSI ADJ ADJ ADJ ADJ ADJ Consolidated Reference(s) Sales revenue 2,498,000 1,820,000 Cost of goods sold 647,000 845,000 1,851,000 1,174,000 Gross profit 975,000 Sales, general, and administrative expenses 533,000 Interest expense 90,000 30,000 Depreciation and amortization expense 215,000 52,000 Goodwill impairment loss 372,000 360,000 Other income 218,000 190,000 Earnings before taxes 590,000 550,000 Income tax expense 177,000 165,000 Consolidated net income 413,000 385,000 Meek's Penguin Corp. Consolidated statement of financial position For the year ended December 31 , 20X7 MPC ZSI ADJ ADJ ADJ Consolidated Reference(s) Cash 313,000 175.000 Accounts receivable and accruals 1,020,000 521,000 466,000 192,000 Inventory Note receivable 150.000 Land 790,000 80,000 228,000 120,000 Buildings (net) 989,000 Equipment (net) 474,000 Trademark 650,000 100,000 Investment 720,000 Deferred income tax asset Goodwill Total assets 5,422,000 1,566,000 Accounts payable and accruals 722,000 235,000 Long-term debt Note payable 1,875,000 600,000 150,000 Common shares 500,000 300,000 Retained earnings 2,175,000 431,000 Non-controlling interest 5,422,000 1,566,000 Meek's Penguin Corp. (MPC) is a Canadian company that reports its financial results in accordance with IFRS. On December 31, 20X6, MPC paid $720,000 cash to acquire 70% of Zoebug Supply Inc.'s (ZSI) outstanding common shares. ZS's comparative statement of financial position as at December 31, 20X7, and its statement of comprehensive income for the year ended December 31, 20X7, follow: Zoebug Supply Inc. Statement of financial position As at December 31 (in '000s) 20X6 $ 175 $ 61 406 20X7 Cash Accounts receivable and accruals 521 Inventory 192 183 Note receivable 150 220 240 160 100 $1.566 $1,370 Land 80 Building (net) Equipment (net) Trademark 228 120 100 Total assets $ 235 $ 264 600 300 206 21.370 Accounts payable and accruals Long-term debt 600 300 431 Common shares Retained earnings Total liabilities and equity $1.566 Zoebug Supply Inc. Statement of comprehensive income For the year ended December 31, 20X7 (in '000s) $1,820 845 975 533 30 52 360 190 550 165 $ 385 Sales revenue Cost of goods sold Gross profit Sales, general, and administrative expenses Interest expense Depreciation and amortization expense Other income Earnings before income tax expense Income tax expense Net income The fair value of Zsi's identifiable net assets at time of acquisition differed from its book value as indicated below (in $000s): Estimated Book value Dec. 31, 20X6 Fair value Dec. 31, 20X6 remaining useful life/term to Estimated maturity residual value Inventory Land Building (net) Equipment (net) Trademark Long-term debt 183 220 240 160 100 600 213 N/A N/A N/A 390 200 176 300 620 N/A 20 years 4 years N/A 4 years so N/A Additional information: 1. Both companies pay income tax at a rate of 30% 2. Both companies use the FIFO cost-flow assumption to value their inventories. 3. Both companies depreciate their depreciable assets on a straight-line basis. 4. The fair value increment on the long-term debt is amortized using the straight-line method. 5. For impairment-testing purposes, MPC established that ZSl is a CGU. MPC tested the CGU for impairment on December 31, 20X7. Goodwill, as calculated using the identifiable net assets (INA) method, was found to be impaired by $18,000. 6. On December 31, 20X7, ZSI sold land to MPC for $155,000. ZS's net book value at time of sale was $140,000, which was the same as the estimated fair value at acquisition date of the subsidiary (December 31, 20X6). In consideration of the transfer, MPC paid $5,000 cash and signed a note payable to ZSI for the $150,000 balance. The note is payable in full on December 31, 20X9. Interest at 4% per annum, payable annually, is first payable on December 31, 20X8. This is the market rate of interest for a note of this length. 7. During 20X7, MPC sold goods to ZSI for $200,000 with a 40% gross profit margin; 10% of these goods remained unsold by ZSI as at December 31, 20X7. 8. During 20X7, ZSI sold goods that it had purchased for $100,000 to MPC for $140,000: 25% of these goods remained unsold by MPC as at December 31, 20X7. 9. During 20X7, ZSI rented office space from MPC at a total cost of $50,000. This amount remained unpaid at year end. 10. MPC purchased new oquipment on January 1, 20X7 and immediately sold it to ZSı for $40,000 cash. MPC's cost of the equipment, which had a useful life of five years, was $36,000. 11. MPC and ZSI only prepare accruals and other adjusting entries at year end. MPC's non-consolidated comparative statement of financial position as at December 31, 20X7, and its non-consolidated statement of comprehensive income for the year ended December 31, 20X7, are set out below:. Meek's Penguin Corp. Statement of financial position As at December 31 (in '000s) 20X7 20X6 8 968 422 640 1,041 632 650 720 $5.081 $ 313 1,020 466 790 Cash Accounts receivable and accruals Inventory Land 989 Building (net) Equipment (net) Trademark Investment Total assets 474 650 720 $5.422 $ 722 1,875 150 500 2.175 $5.422 $ 669 1,950 Accounts payable and accruals Long-term debt Note payable Common shares Retained earnings Total liabilities and equity 500 1,962 $5.081 Meek's Penguin Corp. Statement of comprehensive income For the year ended December 31, 20X7 (in '000s) Sales revenue Cost of goods sold Gross profit Sales, general, and administrative expenses Interest expense Depreciation and amortization expense $2,498 647 1,851 1,174 90 215 372 218 590 177 413 Other income Earnings before income tax expense Income tax expense Net income Required: a) Use the acquisition method to allocate the acquisition differential and determine goodwill arising on acquisition, assuming that MPC uses the INA method to value the non-controlling interest (NCI). (2 marks) b) Use the acquisition method to allocate the acquisition differential and determine goodwill arising on acquisition, assuming that MPC uses the fair value enterprise (FVE) method to value the NCI. (2 marks) c) Based on the solution to part (a) (where MPC uses the INA method to value the NCI), prepare an acquisition differential amortization and impairment schedule for 20X7. Provide references for each line in the AD schedule that will be used to reference through to the consolidated financial statements. (2 marks) d) Prepare a list of all intercompany transactions and balances that are pertinent to the case facts and should be eliminated upon consolidation, Hint: There are six intercompany transactions that should be eliminated, five of which have two applicable parts (for example, note receivable/note payabie = one intercompany transaction). (0.5 marks) e) Calculate all unrealized and realized intercompany profits. (3.5 marks) • Provide references for each line in both the schedule of intercompany transactions and the schedule of unrealized/realized intercompany profits that will be used to reference through to the consolidated financial statements. • Include a calculation of the total deferred tax assetliability. Indicate whether the calculated figure is an asset or a liability. For parts (f) through (i), assume that MPC uses the INA method to value the NCI. Calculations done in earlier sections of Question 3 do not need to be redone on these worksheets. ) Prepare MPC's consolidated statement of comprehensive income for the year ended December 31, 20X7. Show the allocation between the parent and NCI. Include references to your supporting calculations, which will typically be the references in the supporting schedules prepared in parts (a) through € of Question 3. (6 marks) Note: From the Project Data file, copy and paste the template in the worksheet titled "Q3 Consolidated SCI 20X7" found in the Prep-AFR-ASNO6-WO0.DAT.1.G Excel file into your project submission. 9) Prepare MPC's consolidated statement of retained earnings for the year ended December 31, 20X7. (1 mark) h) Calculate the NCI on the statement of financial position as at December 31, 20X7. (1 mark) ) Prepare MPC's consolidated statement of financial position as at December 31, 20X7. Include references to your supporting calculations, which will typically be the references in the supporting schedules prepared in parts (a) through (h) of Question 3. (4 marks) Meek's Penguin Corp Consolidated statement of comprehensive income As at December 31, 20X7 MPC ZSI ADJ ADJ ADJ ADJ ADJ Consolidated Reference(s) Sales revenue 2,498,000 1,820,000 Cost of goods sold 647,000 845,000 1,851,000 1,174,000 Gross profit 975,000 Sales, general, and administrative expenses 533,000 Interest expense 90,000 30,000 Depreciation and amortization expense 215,000 52,000 Goodwill impairment loss 372,000 360,000 Other income 218,000 190,000 Earnings before taxes 590,000 550,000 Income tax expense 177,000 165,000 Consolidated net income 413,000 385,000 Meek's Penguin Corp. Consolidated statement of financial position For the year ended December 31 , 20X7 MPC ZSI ADJ ADJ ADJ Consolidated Reference(s) Cash 313,000 175.000 Accounts receivable and accruals 1,020,000 521,000 466,000 192,000 Inventory Note receivable 150.000 Land 790,000 80,000 228,000 120,000 Buildings (net) 989,000 Equipment (net) 474,000 Trademark 650,000 100,000 Investment 720,000 Deferred income tax asset Goodwill Total assets 5,422,000 1,566,000 Accounts payable and accruals 722,000 235,000 Long-term debt Note payable 1,875,000 600,000 150,000 Common shares 500,000 300,000 Retained earnings 2,175,000 431,000 Non-controlling interest 5,422,000 1,566,000 Meek's Penguin Corp. (MPC) is a Canadian company that reports its financial results in accordance with IFRS. On December 31, 20X6, MPC paid $720,000 cash to acquire 70% of Zoebug Supply Inc.'s (ZSI) outstanding common shares. ZS's comparative statement of financial position as at December 31, 20X7, and its statement of comprehensive income for the year ended December 31, 20X7, follow: Zoebug Supply Inc. Statement of financial position As at December 31 (in '000s) 20X6 $ 175 $ 61 406 20X7 Cash Accounts receivable and accruals 521 Inventory 192 183 Note receivable 150 220 240 160 100 $1.566 $1,370 Land 80 Building (net) Equipment (net) Trademark 228 120 100 Total assets $ 235 $ 264 600 300 206 21.370 Accounts payable and accruals Long-term debt 600 300 431 Common shares Retained earnings Total liabilities and equity $1.566 Zoebug Supply Inc. Statement of comprehensive income For the year ended December 31, 20X7 (in '000s) $1,820 845 975 533 30 52 360 190 550 165 $ 385 Sales revenue Cost of goods sold Gross profit Sales, general, and administrative expenses Interest expense Depreciation and amortization expense Other income Earnings before income tax expense Income tax expense Net income The fair value of Zsi's identifiable net assets at time of acquisition differed from its book value as indicated below (in $000s): Estimated Book value Dec. 31, 20X6 Fair value Dec. 31, 20X6 remaining useful life/term to Estimated maturity residual value Inventory Land Building (net) Equipment (net) Trademark Long-term debt 183 220 240 160 100 600 213 N/A N/A N/A 390 200 176 300 620 N/A 20 years 4 years N/A 4 years so N/A Additional information: 1. Both companies pay income tax at a rate of 30% 2. Both companies use the FIFO cost-flow assumption to value their inventories. 3. Both companies depreciate their depreciable assets on a straight-line basis. 4. The fair value increment on the long-term debt is amortized using the straight-line method. 5. For impairment-testing purposes, MPC established that ZSl is a CGU. MPC tested the CGU for impairment on December 31, 20X7. Goodwill, as calculated using the identifiable net assets (INA) method, was found to be impaired by $18,000. 6. On December 31, 20X7, ZSI sold land to MPC for $155,000. ZS's net book value at time of sale was $140,000, which was the same as the estimated fair value at acquisition date of the subsidiary (December 31, 20X6). In consideration of the transfer, MPC paid $5,000 cash and signed a note payable to ZSI for the $150,000 balance. The note is payable in full on December 31, 20X9. Interest at 4% per annum, payable annually, is first payable on December 31, 20X8. This is the market rate of interest for a note of this length. 7. During 20X7, MPC sold goods to ZSI for $200,000 with a 40% gross profit margin; 10% of these goods remained unsold by ZSI as at December 31, 20X7. 8. During 20X7, ZSI sold goods that it had purchased for $100,000 to MPC for $140,000: 25% of these goods remained unsold by MPC as at December 31, 20X7. 9. During 20X7, ZSI rented office space from MPC at a total cost of $50,000. This amount remained unpaid at year end. 10. MPC purchased new oquipment on January 1, 20X7 and immediately sold it to ZSı for $40,000 cash. MPC's cost of the equipment, which had a useful life of five years, was $36,000. 11. MPC and ZSI only prepare accruals and other adjusting entries at year end. MPC's non-consolidated comparative statement of financial position as at December 31, 20X7, and its non-consolidated statement of comprehensive income for the year ended December 31, 20X7, are set out below:. Meek's Penguin Corp. Statement of financial position As at December 31 (in '000s) 20X7 20X6 8 968 422 640 1,041 632 650 720 $5.081 $ 313 1,020 466 790 Cash Accounts receivable and accruals Inventory Land 989 Building (net) Equipment (net) Trademark Investment Total assets 474 650 720 $5.422 $ 722 1,875 150 500 2.175 $5.422 $ 669 1,950 Accounts payable and accruals Long-term debt Note payable Common shares Retained earnings Total liabilities and equity 500 1,962 $5.081 Meek's Penguin Corp. Statement of comprehensive income For the year ended December 31, 20X7 (in '000s) Sales revenue Cost of goods sold Gross profit Sales, general, and administrative expenses Interest expense Depreciation and amortization expense $2,498 647 1,851 1,174 90 215 372 218 590 177 413 Other income Earnings before income tax expense Income tax expense Net income Required: a) Use the acquisition method to allocate the acquisition differential and determine goodwill arising on acquisition, assuming that MPC uses the INA method to value the non-controlling interest (NCI). (2 marks) b) Use the acquisition method to allocate the acquisition differential and determine goodwill arising on acquisition, assuming that MPC uses the fair value enterprise (FVE) method to value the NCI. (2 marks) c) Based on the solution to part (a) (where MPC uses the INA method to value the NCI), prepare an acquisition differential amortization and impairment schedule for 20X7. Provide references for each line in the AD schedule that will be used to reference through to the consolidated financial statements. (2 marks) d) Prepare a list of all intercompany transactions and balances that are pertinent to the case facts and should be eliminated upon consolidation, Hint: There are six intercompany transactions that should be eliminated, five of which have two applicable parts (for example, note receivable/note payabie = one intercompany transaction). (0.5 marks) e) Calculate all unrealized and realized intercompany profits. (3.5 marks) • Provide references for each line in both the schedule of intercompany transactions and the schedule of unrealized/realized intercompany profits that will be used to reference through to the consolidated financial statements. • Include a calculation of the total deferred tax assetliability. Indicate whether the calculated figure is an asset or a liability. For parts (f) through (i), assume that MPC uses the INA method to value the NCI. Calculations done in earlier sections of Question 3 do not need to be redone on these worksheets. ) Prepare MPC's consolidated statement of comprehensive income for the year ended December 31, 20X7. Show the allocation between the parent and NCI. Include references to your supporting calculations, which will typically be the references in the supporting schedules prepared in parts (a) through € of Question 3. (6 marks) Note: From the Project Data file, copy and paste the template in the worksheet titled "Q3 Consolidated SCI 20X7" found in the Prep-AFR-ASNO6-WO0.DAT.1.G Excel file into your project submission. 9) Prepare MPC's consolidated statement of retained earnings for the year ended December 31, 20X7. (1 mark) h) Calculate the NCI on the statement of financial position as at December 31, 20X7. (1 mark) ) Prepare MPC's consolidated statement of financial position as at December 31, 20X7. Include references to your supporting calculations, which will typically be the references in the supporting schedules prepared in parts (a) through (h) of Question 3. (4 marks) Meek's Penguin Corp Consolidated statement of comprehensive income As at December 31, 20X7 MPC ZSI ADJ ADJ ADJ ADJ ADJ Consolidated Reference(s) Sales revenue 2,498,000 1,820,000 Cost of goods sold 647,000 845,000 1,851,000 1,174,000 Gross profit 975,000 Sales, general, and administrative expenses 533,000 Interest expense 90,000 30,000 Depreciation and amortization expense 215,000 52,000 Goodwill impairment loss 372,000 360,000 Other income 218,000 190,000 Earnings before taxes 590,000 550,000 Income tax expense 177,000 165,000 Consolidated net income 413,000 385,000 Meek's Penguin Corp. Consolidated statement of financial position For the year ended December 31 , 20X7 MPC ZSI ADJ ADJ ADJ Consolidated Reference(s) Cash 313,000 175.000 Accounts receivable and accruals 1,020,000 521,000 466,000 192,000 Inventory Note receivable 150.000 Land 790,000 80,000 228,000 120,000 Buildings (net) 989,000 Equipment (net) 474,000 Trademark 650,000 100,000 Investment 720,000 Deferred income tax asset Goodwill Total assets 5,422,000 1,566,000 Accounts payable and accruals 722,000 235,000 Long-term debt Note payable 1,875,000 600,000 150,000 Common shares 500,000 300,000 Retained earnings 2,175,000 431,000 Non-controlling interest 5,422,000 1,566,000 Meek's Penguin Corp. (MPC) is a Canadian company that reports its financial results in accordance with IFRS. On December 31, 20X6, MPC paid $720,000 cash to acquire 70% of Zoebug Supply Inc.'s (ZSI) outstanding common shares. ZS's comparative statement of financial position as at December 31, 20X7, and its statement of comprehensive income for the year ended December 31, 20X7, follow: Zoebug Supply Inc. Statement of financial position As at December 31 (in '000s) 20X6 $ 175 $ 61 406 20X7 Cash Accounts receivable and accruals 521 Inventory 192 183 Note receivable 150 220 240 160 100 $1.566 $1,370 Land 80 Building (net) Equipment (net) Trademark 228 120 100 Total assets $ 235 $ 264 600 300 206 21.370 Accounts payable and accruals Long-term debt 600 300 431 Common shares Retained earnings Total liabilities and equity $1.566 Zoebug Supply Inc. Statement of comprehensive income For the year ended December 31, 20X7 (in '000s) $1,820 845 975 533 30 52 360 190 550 165 $ 385 Sales revenue Cost of goods sold Gross profit Sales, general, and administrative expenses Interest expense Depreciation and amortization expense Other income Earnings before income tax expense Income tax expense Net income The fair value of Zsi's identifiable net assets at time of acquisition differed from its book value as indicated below (in $000s): Estimated Book value Dec. 31, 20X6 Fair value Dec. 31, 20X6 remaining useful life/term to Estimated maturity residual value Inventory Land Building (net) Equipment (net) Trademark Long-term debt 183 220 240 160 100 600 213 N/A N/A N/A 390 200 176 300 620 N/A 20 years 4 years N/A 4 years so N/A Additional information: 1. Both companies pay income tax at a rate of 30% 2. Both companies use the FIFO cost-flow assumption to value their inventories. 3. Both companies depreciate their depreciable assets on a straight-line basis. 4. The fair value increment on the long-term debt is amortized using the straight-line method. 5. For impairment-testing purposes, MPC established that ZSl is a CGU. MPC tested the CGU for impairment on December 31, 20X7. Goodwill, as calculated using the identifiable net assets (INA) method, was found to be impaired by $18,000. 6. On December 31, 20X7, ZSI sold land to MPC for $155,000. ZS's net book value at time of sale was $140,000, which was the same as the estimated fair value at acquisition date of the subsidiary (December 31, 20X6). In consideration of the transfer, MPC paid $5,000 cash and signed a note payable to ZSI for the $150,000 balance. The note is payable in full on December 31, 20X9. Interest at 4% per annum, payable annually, is first payable on December 31, 20X8. This is the market rate of interest for a note of this length. 7. During 20X7, MPC sold goods to ZSI for $200,000 with a 40% gross profit margin; 10% of these goods remained unsold by ZSI as at December 31, 20X7. 8. During 20X7, ZSI sold goods that it had purchased for $100,000 to MPC for $140,000: 25% of these goods remained unsold by MPC as at December 31, 20X7. 9. During 20X7, ZSI rented office space from MPC at a total cost of $50,000. This amount remained unpaid at year end. 10. MPC purchased new oquipment on January 1, 20X7 and immediately sold it to ZSı for $40,000 cash. MPC's cost of the equipment, which had a useful life of five years, was $36,000. 11. MPC and ZSI only prepare accruals and other adjusting entries at year end. MPC's non-consolidated comparative statement of financial position as at December 31, 20X7, and its non-consolidated statement of comprehensive income for the year ended December 31, 20X7, are set out below:. Meek's Penguin Corp. Statement of financial position As at December 31 (in '000s) 20X7 20X6 8 968 422 640 1,041 632 650 720 $5.081 $ 313 1,020 466 790 Cash Accounts receivable and accruals Inventory Land 989 Building (net) Equipment (net) Trademark Investment Total assets 474 650 720 $5.422 $ 722 1,875 150 500 2.175 $5.422 $ 669 1,950 Accounts payable and accruals Long-term debt Note payable Common shares Retained earnings Total liabilities and equity 500 1,962 $5.081 Meek's Penguin Corp. Statement of comprehensive income For the year ended December 31, 20X7 (in '000s) Sales revenue Cost of goods sold Gross profit Sales, general, and administrative expenses Interest expense Depreciation and amortization expense $2,498 647 1,851 1,174 90 215 372 218 590 177 413 Other income Earnings before income tax expense Income tax expense Net income Required: a) Use the acquisition method to allocate the acquisition differential and determine goodwill arising on acquisition, assuming that MPC uses the INA method to value the non-controlling interest (NCI). (2 marks) b) Use the acquisition method to allocate the acquisition differential and determine goodwill arising on acquisition, assuming that MPC uses the fair value enterprise (FVE) method to value the NCI. (2 marks) c) Based on the solution to part (a) (where MPC uses the INA method to value the NCI), prepare an acquisition differential amortization and impairment schedule for 20X7. Provide references for each line in the AD schedule that will be used to reference through to the consolidated financial statements. (2 marks) d) Prepare a list of all intercompany transactions and balances that are pertinent to the case facts and should be eliminated upon consolidation, Hint: There are six intercompany transactions that should be eliminated, five of which have two applicable parts (for example, note receivable/note payabie = one intercompany transaction). (0.5 marks) e) Calculate all unrealized and realized intercompany profits. (3.5 marks) • Provide references for each line in both the schedule of intercompany transactions and the schedule of unrealized/realized intercompany profits that will be used to reference through to the consolidated financial statements. • Include a calculation of the total deferred tax assetliability. Indicate whether the calculated figure is an asset or a liability. For parts (f) through (i), assume that MPC uses the INA method to value the NCI. Calculations done in earlier sections of Question 3 do not need to be redone on these worksheets. ) Prepare MPC's consolidated statement of comprehensive income for the year ended December 31, 20X7. Show the allocation between the parent and NCI. Include references to your supporting calculations, which will typically be the references in the supporting schedules prepared in parts (a) through € of Question 3. (6 marks) Note: From the Project Data file, copy and paste the template in the worksheet titled "Q3 Consolidated SCI 20X7" found in the Prep-AFR-ASNO6-WO0.DAT.1.G Excel file into your project submission. 9) Prepare MPC's consolidated statement of retained earnings for the year ended December 31, 20X7. (1 mark) h) Calculate the NCI on the statement of financial position as at December 31, 20X7. (1 mark) ) Prepare MPC's consolidated statement of financial position as at December 31, 20X7. Include references to your supporting calculations, which will typically be the references in the supporting schedules prepared in parts (a) through (h) of Question 3. (4 marks) Meek's Penguin Corp Consolidated statement of comprehensive income As at December 31, 20X7 MPC ZSI ADJ ADJ ADJ ADJ ADJ Consolidated Reference(s) Sales revenue 2,498,000 1,820,000 Cost of goods sold 647,000 845,000 1,851,000 1,174,000 Gross profit 975,000 Sales, general, and administrative expenses 533,000 Interest expense 90,000 30,000 Depreciation and amortization expense 215,000 52,000 Goodwill impairment loss 372,000 360,000 Other income 218,000 190,000 Earnings before taxes 590,000 550,000 Income tax expense 177,000 165,000 Consolidated net income 413,000 385,000 Meek's Penguin Corp. Consolidated statement of financial position For the year ended December 31 , 20X7 MPC ZSI ADJ ADJ ADJ Consolidated Reference(s) Cash 313,000 175.000 Accounts receivable and accruals 1,020,000 521,000 466,000 192,000 Inventory Note receivable 150.000 Land 790,000 80,000 228,000 120,000 Buildings (net) 989,000 Equipment (net) 474,000 Trademark 650,000 100,000 Investment 720,000 Deferred income tax asset Goodwill Total assets 5,422,000 1,566,000 Accounts payable and accruals 722,000 235,000 Long-term debt Note payable 1,875,000 600,000 150,000 Common shares 500,000 300,000 Retained earnings 2,175,000 431,000 Non-controlling interest 5,422,000 1,566,000 Meek's Penguin Corp. (MPC) is a Canadian company that reports its financial results in accordance with IFRS. On December 31, 20X6, MPC paid $720,000 cash to acquire 70% of Zoebug Supply Inc.'s (ZSI) outstanding common shares. ZS's comparative statement of financial position as at December 31, 20X7, and its statement of comprehensive income for the year ended December 31, 20X7, follow: Zoebug Supply Inc. Statement of financial position As at December 31 (in '000s) 20X6 $ 175 $ 61 406 20X7 Cash Accounts receivable and accruals 521 Inventory 192 183 Note receivable 150 220 240 160 100 $1.566 $1,370 Land 80 Building (net) Equipment (net) Trademark 228 120 100 Total assets $ 235 $ 264 600 300 206 21.370 Accounts payable and accruals Long-term debt 600 300 431 Common shares Retained earnings Total liabilities and equity $1.566 Zoebug Supply Inc. Statement of comprehensive income For the year ended December 31, 20X7 (in '000s) $1,820 845 975 533 30 52 360 190 550 165 $ 385 Sales revenue Cost of goods sold Gross profit Sales, general, and administrative expenses Interest expense Depreciation and amortization expense Other income Earnings before income tax expense Income tax expense Net income The fair value of Zsi's identifiable net assets at time of acquisition differed from its book value as indicated below (in $000s): Estimated Book value Dec. 31, 20X6 Fair value Dec. 31, 20X6 remaining useful life/term to Estimated maturity residual value Inventory Land Building (net) Equipment (net) Trademark Long-term debt 183 220 240 160 100 600 213 N/A N/A N/A 390 200 176 300 620 N/A 20 years 4 years N/A 4 years so N/A Additional information: 1. Both companies pay income tax at a rate of 30% 2. Both companies use the FIFO cost-flow assumption to value their inventories. 3. Both companies depreciate their depreciable assets on a straight-line basis. 4. The fair value increment on the long-term debt is amortized using the straight-line method. 5. For impairment-testing purposes, MPC established that ZSl is a CGU. MPC tested the CGU for impairment on December 31, 20X7. Goodwill, as calculated using the identifiable net assets (INA) method, was found to be impaired by $18,000. 6. On December 31, 20X7, ZSI sold land to MPC for $155,000. ZS's net book value at time of sale was $140,000, which was the same as the estimated fair value at acquisition date of the subsidiary (December 31, 20X6). In consideration of the transfer, MPC paid $5,000 cash and signed a note payable to ZSI for the $150,000 balance. The note is payable in full on December 31, 20X9. Interest at 4% per annum, payable annually, is first payable on December 31, 20X8. This is the market rate of interest for a note of this length. 7. During 20X7, MPC sold goods to ZSI for $200,000 with a 40% gross profit margin; 10% of these goods remained unsold by ZSI as at December 31, 20X7. 8. During 20X7, ZSI sold goods that it had purchased for $100,000 to MPC for $140,000: 25% of these goods remained unsold by MPC as at December 31, 20X7. 9. During 20X7, ZSI rented office space from MPC at a total cost of $50,000. This amount remained unpaid at year end. 10. MPC purchased new oquipment on January 1, 20X7 and immediately sold it to ZSı for $40,000 cash. MPC's cost of the equipment, which had a useful life of five years, was $36,000. 11. MPC and ZSI only prepare accruals and other adjusting entries at year end. MPC's non-consolidated comparative statement of financial position as at December 31, 20X7, and its non-consolidated statement of comprehensive income for the year ended December 31, 20X7, are set out below:. Meek's Penguin Corp. Statement of financial position As at December 31 (in '000s) 20X7 20X6 8 968 422 640 1,041 632 650 720 $5.081 $ 313 1,020 466 790 Cash Accounts receivable and accruals Inventory Land 989 Building (net) Equipment (net) Trademark Investment Total assets 474 650 720 $5.422 $ 722 1,875 150 500 2.175 $5.422 $ 669 1,950 Accounts payable and accruals Long-term debt Note payable Common shares Retained earnings Total liabilities and equity 500 1,962 $5.081 Meek's Penguin Corp. Statement of comprehensive income For the year ended December 31, 20X7 (in '000s) Sales revenue Cost of goods sold Gross profit Sales, general, and administrative expenses Interest expense Depreciation and amortization expense $2,498 647 1,851 1,174 90 215 372 218 590 177 413 Other income Earnings before income tax expense Income tax expense Net income Required: a) Use the acquisition method to allocate the acquisition differential and determine goodwill arising on acquisition, assuming that MPC uses the INA method to value the non-controlling interest (NCI). (2 marks) b) Use the acquisition method to allocate the acquisition differential and determine goodwill arising on acquisition, assuming that MPC uses the fair value enterprise (FVE) method to value the NCI. (2 marks) c) Based on the solution to part (a) (where MPC uses the INA method to value the NCI), prepare an acquisition differential amortization and impairment schedule for 20X7. Provide references for each line in the AD schedule that will be used to reference through to the consolidated financial statements. (2 marks) d) Prepare a list of all intercompany transactions and balances that are pertinent to the case facts and should be eliminated upon consolidation, Hint: There are six intercompany transactions that should be eliminated, five of which have two applicable parts (for example, note receivable/note payabie = one intercompany transaction). (0.5 marks) e) Calculate all unrealized and realized intercompany profits. (3.5 marks) • Provide references for each line in both the schedule of intercompany transactions and the schedule of unrealized/realized intercompany profits that will be used to reference through to the consolidated financial statements. • Include a calculation of the total deferred tax assetliability. Indicate whether the calculated figure is an asset or a liability. For parts (f) through (i), assume that MPC uses the INA method to value the NCI. Calculations done in earlier sections of Question 3 do not need to be redone on these worksheets. ) Prepare MPC's consolidated statement of comprehensive income for the year ended December 31, 20X7. Show the allocation between the parent and NCI. Include references to your supporting calculations, which will typically be the references in the supporting schedules prepared in parts (a) through € of Question 3. (6 marks) Note: From the Project Data file, copy and paste the template in the worksheet titled "Q3 Consolidated SCI 20X7" found in the Prep-AFR-ASNO6-WO0.DAT.1.G Excel file into your project submission. 9) Prepare MPC's consolidated statement of retained earnings for the year ended December 31, 20X7. (1 mark) h) Calculate the NCI on the statement of financial position as at December 31, 20X7. (1 mark) ) Prepare MPC's consolidated statement of financial position as at December 31, 20X7. Include references to your supporting calculations, which will typically be the references in the supporting schedules prepared in parts (a) through (h) of Question 3. (4 marks) Meek's Penguin Corp Consolidated statement of comprehensive income As at December 31, 20X7 MPC ZSI ADJ ADJ ADJ ADJ ADJ Consolidated Reference(s) Sales revenue 2,498,000 1,820,000 Cost of goods sold 647,000 845,000 1,851,000 1,174,000 Gross profit 975,000 Sales, general, and administrative expenses 533,000 Interest expense 90,000 30,000 Depreciation and amortization expense 215,000 52,000 Goodwill impairment loss 372,000 360,000 Other income 218,000 190,000 Earnings before taxes 590,000 550,000 Income tax expense 177,000 165,000 Consolidated net income 413,000 385,000 Meek's Penguin Corp. Consolidated statement of financial position For the year ended December 31 , 20X7 MPC ZSI ADJ ADJ ADJ Consolidated Reference(s) Cash 313,000 175.000 Accounts receivable and accruals 1,020,000 521,000 466,000 192,000 Inventory Note receivable 150.000 Land 790,000 80,000 228,000 120,000 Buildings (net) 989,000 Equipment (net) 474,000 Trademark 650,000 100,000 Investment 720,000 Deferred income tax asset Goodwill Total assets 5,422,000 1,566,000 Accounts payable and accruals 722,000 235,000 Long-term debt Note payable 1,875,000 600,000 150,000 Common shares 500,000 300,000 Retained earnings 2,175,000 431,000 Non-controlling interest 5,422,000 1,566,000 Meek's Penguin Corp. (MPC) is a Canadian company that reports its financial results in accordance with IFRS. On December 31, 20X6, MPC paid $720,000 cash to acquire 70% of Zoebug Supply Inc.'s (ZSI) outstanding common shares. ZS's comparative statement of financial position as at December 31, 20X7, and its statement of comprehensive income for the year ended December 31, 20X7, follow: Zoebug Supply Inc. Statement of financial position As at December 31 (in '000s) 20X6 $ 175 $ 61 406 20X7 Cash Accounts receivable and accruals 521 Inventory 192 183 Note receivable 150 220 240 160 100 $1.566 $1,370 Land 80 Building (net) Equipment (net) Trademark 228 120 100 Total assets $ 235 $ 264 600 300 206 21.370 Accounts payable and accruals Long-term debt 600 300 431 Common shares Retained earnings Total liabilities and equity $1.566 Zoebug Supply Inc. Statement of comprehensive income For the year ended December 31, 20X7 (in '000s) $1,820 845 975 533 30 52 360 190 550 165 $ 385 Sales revenue Cost of goods sold Gross profit Sales, general, and administrative expenses Interest expense Depreciation and amortization expense Other income Earnings before income tax expense Income tax expense Net income The fair value of Zsi's identifiable net assets at time of acquisition differed from its book value as indicated below (in $000s): Estimated Book value Dec. 31, 20X6 Fair value Dec. 31, 20X6 remaining useful life/term to Estimated maturity residual value Inventory Land Building (net) Equipment (net) Trademark Long-term debt 183 220 240 160 100 600 213 N/A N/A N/A 390 200 176 300 620 N/A 20 years 4 years N/A 4 years so N/A Additional information: 1. Both companies pay income tax at a rate of 30% 2. Both companies use the FIFO cost-flow assumption to value their inventories. 3. Both companies depreciate their depreciable assets on a straight-line basis. 4. The fair value increment on the long-term debt is amortized using the straight-line method. 5. For impairment-testing purposes, MPC established that ZSl is a CGU. MPC tested the CGU for impairment on December 31, 20X7. Goodwill, as calculated using the identifiable net assets (INA) method, was found to be impaired by $18,000. 6. On December 31, 20X7, ZSI sold land to MPC for $155,000. ZS's net book value at time of sale was $140,000, which was the same as the estimated fair value at acquisition date of the subsidiary (December 31, 20X6). In consideration of the transfer, MPC paid $5,000 cash and signed a note payable to ZSI for the $150,000 balance. The note is payable in full on December 31, 20X9. Interest at 4% per annum, payable annually, is first payable on December 31, 20X8. This is the market rate of interest for a note of this length. 7. During 20X7, MPC sold goods to ZSI for $200,000 with a 40% gross profit margin; 10% of these goods remained unsold by ZSI as at December 31, 20X7. 8. During 20X7, ZSI sold goods that it had purchased for $100,000 to MPC for $140,000: 25% of these goods remained unsold by MPC as at December 31, 20X7. 9. During 20X7, ZSI rented office space from MPC at a total cost of $50,000. This amount remained unpaid at year end. 10. MPC purchased new oquipment on January 1, 20X7 and immediately sold it to ZSı for $40,000 cash. MPC's cost of the equipment, which had a useful life of five years, was $36,000. 11. MPC and ZSI only prepare accruals and other adjusting entries at year end. MPC's non-consolidated comparative statement of financial position as at December 31, 20X7, and its non-consolidated statement of comprehensive income for the year ended December 31, 20X7, are set out below:. Meek's Penguin Corp. Statement of financial position As at December 31 (in '000s) 20X7 20X6 8 968 422 640 1,041 632 650 720 $5.081 $ 313 1,020 466 790 Cash Accounts receivable and accruals Inventory Land 989 Building (net) Equipment (net) Trademark Investment Total assets 474 650 720 $5.422 $ 722 1,875 150 500 2.175 $5.422 $ 669 1,950 Accounts payable and accruals Long-term debt Note payable Common shares Retained earnings Total liabilities and equity 500 1,962 $5.081 Meek's Penguin Corp. Statement of comprehensive income For the year ended December 31, 20X7 (in '000s) Sales revenue Cost of goods sold Gross profit Sales, general, and administrative expenses Interest expense Depreciation and amortization expense $2,498 647 1,851 1,174 90 215 372 218 590 177 413 Other income Earnings before income tax expense Income tax expense Net income Required: a) Use the acquisition method to allocate the acquisition differential and determine goodwill arising on acquisition, assuming that MPC uses the INA method to value the non-controlling interest (NCI). (2 marks) b) Use the acquisition method to allocate the acquisition differential and determine goodwill arising on acquisition, assuming that MPC uses the fair value enterprise (FVE) method to value the NCI. (2 marks) c) Based on the solution to part (a) (where MPC uses the INA method to value the NCI), prepare an acquisition differential amortization and impairment schedule for 20X7. Provide references for each line in the AD schedule that will be used to reference through to the consolidated financial statements. (2 marks) d) Prepare a list of all intercompany transactions and balances that are pertinent to the case facts and should be eliminated upon consolidation, Hint: There are six intercompany transactions that should be eliminated, five of which have two applicable parts (for example, note receivable/note payabie = one intercompany transaction). (0.5 marks) e) Calculate all unrealized and realized intercompany profits. (3.5 marks) • Provide references for each line in both the schedule of intercompany transactions and the schedule of unrealized/realized intercompany profits that will be used to reference through to the consolidated financial statements. • Include a calculation of the total deferred tax assetliability. Indicate whether the calculated figure is an asset or a liability. For parts (f) through (i), assume that MPC uses the INA method to value the NCI. Calculations done in earlier sections of Question 3 do not need to be redone on these worksheets. ) Prepare MPC's consolidated statement of comprehensive income for the year ended December 31, 20X7. Show the allocation between the parent and NCI. Include references to your supporting calculations, which will typically be the references in the supporting schedules prepared in parts (a) through € of Question 3. (6 marks) Note: From the Project Data file, copy and paste the template in the worksheet titled "Q3 Consolidated SCI 20X7" found in the Prep-AFR-ASNO6-WO0.DAT.1.G Excel file into your project submission. 9) Prepare MPC's consolidated statement of retained earnings for the year ended December 31, 20X7. (1 mark) h) Calculate the NCI on the statement of financial position as at December 31, 20X7. (1 mark) ) Prepare MPC's consolidated statement of financial position as at December 31, 20X7. Include references to your supporting calculations, which will typically be the references in the supporting schedules prepared in parts (a) through (h) of Question 3. (4 marks) Meek's Penguin Corp Consolidated statement of comprehensive income As at December 31, 20X7 MPC ZSI ADJ ADJ ADJ ADJ ADJ Consolidated Reference(s) Sales revenue 2,498,000 1,820,000 Cost of goods sold 647,000 845,000 1,851,000 1,174,000 Gross profit 975,000 Sales, general, and administrative expenses 533,000 Interest expense 90,000 30,000 Depreciation and amortization expense 215,000 52,000 Goodwill impairment loss 372,000 360,000 Other income 218,000 190,000 Earnings before taxes 590,000 550,000 Income tax expense 177,000 165,000 Consolidated net income 413,000 385,000 Meek's Penguin Corp. Consolidated statement of financial position For the year ended December 31 , 20X7 MPC ZSI ADJ ADJ ADJ Consolidated Reference(s) Cash 313,000 175.000 Accounts receivable and accruals 1,020,000 521,000 466,000 192,000 Inventory Note receivable 150.000 Land 790,000 80,000 228,000 120,000 Buildings (net) 989,000 Equipment (net) 474,000 Trademark 650,000 100,000 Investment 720,000 Deferred income tax asset Goodwill Total assets 5,422,000 1,566,000 Accounts payable and accruals 722,000 235,000 Long-term debt Note payable 1,875,000 600,000 150,000 Common shares 500,000 300,000 Retained earnings 2,175,000 431,000 Non-controlling interest 5,422,000 1,566,000 Meek's Penguin Corp. (MPC) is a Canadian company that reports its financial results in accordance with IFRS. On December 31, 20X6, MPC paid $720,000 cash to acquire 70% of Zoebug Supply Inc.'s (ZSI) outstanding common shares. ZS's comparative statement of financial position as at December 31, 20X7, and its statement of comprehensive income for the year ended December 31, 20X7, follow: Zoebug Supply Inc. Statement of financial position As at December 31 (in '000s) 20X6 $ 175 $ 61 406 20X7 Cash Accounts receivable and accruals 521 Inventory 192 183 Note receivable 150 220 240 160 100 $1.566 $1,370 Land 80 Building (net) Equipment (net) Trademark 228 120 100 Total assets $ 235 $ 264 600 300 206 21.370 Accounts payable and accruals Long-term debt 600 300 431 Common shares Retained earnings Total liabilities and equity $1.566 Zoebug Supply Inc. Statement of comprehensive income For the year ended December 31, 20X7 (in '000s) $1,820 845 975 533 30 52 360 190 550 165 $ 385 Sales revenue Cost of goods sold Gross profit Sales, general, and administrative expenses Interest expense Depreciation and amortization expense Other income Earnings before income tax expense Income tax expense Net income The fair value of Zsi's identifiable net assets at time of acquisition differed from its book value as indicated below (in $000s): Estimated Book value Dec. 31, 20X6 Fair value Dec. 31, 20X6 remaining useful life/term to Estimated maturity residual value Inventory Land Building (net) Equipment (net) Trademark Long-term debt 183 220 240 160 100 600 213 N/A N/A N/A 390 200 176 300 620 N/A 20 years 4 years N/A 4 years so N/A Additional information: 1. Both companies pay income tax at a rate of 30% 2. Both companies use the FIFO cost-flow assumption to value their inventories. 3. Both companies depreciate their depreciable assets on a straight-line basis. 4. The fair value increment on the long-term debt is amortized using the straight-line method. 5. For impairment-testing purposes, MPC established that ZSl is a CGU. MPC tested the CGU for impairment on December 31, 20X7. Goodwill, as calculated using the identifiable net assets (INA) method, was found to be impaired by $18,000. 6. On December 31, 20X7, ZSI sold land to MPC for $155,000. ZS's net book value at time of sale was $140,000, which was the same as the estimated fair value at acquisition date of the subsidiary (December 31, 20X6). In consideration of the transfer, MPC paid $5,000 cash and signed a note payable to ZSI for the $150,000 balance. The note is payable in full on December 31, 20X9. Interest at 4% per annum, payable annually, is first payable on December 31, 20X8. This is the market rate of interest for a note of this length. 7. During 20X7, MPC sold goods to ZSI for $200,000 with a 40% gross profit margin; 10% of these goods remained unsold by ZSI as at December 31, 20X7. 8. During 20X7, ZSI sold goods that it had purchased for $100,000 to MPC for $140,000: 25% of these goods remained unsold by MPC as at December 31, 20X7. 9. During 20X7, ZSI rented office space from MPC at a total cost of $50,000. This amount remained unpaid at year end. 10. MPC purchased new oquipment on January 1, 20X7 and immediately sold it to ZSı for $40,000 cash. MPC's cost of the equipment, which had a useful life of five years, was $36,000. 11. MPC and ZSI only prepare accruals and other adjusting entries at year end. MPC's non-consolidated comparative statement of financial position as at December 31, 20X7, and its non-consolidated statement of comprehensive income for the year ended December 31, 20X7, are set out below:. Meek's Penguin Corp. Statement of financial position As at December 31 (in '000s) 20X7 20X6 8 968 422 640 1,041 632 650 720 $5.081 $ 313 1,020 466 790 Cash Accounts receivable and accruals Inventory Land 989 Building (net) Equipment (net) Trademark Investment Total assets 474 650 720 $5.422 $ 722 1,875 150 500 2.175 $5.422 $ 669 1,950 Accounts payable and accruals Long-term debt Note payable Common shares Retained earnings Total liabilities and equity 500 1,962 $5.081 Meek's Penguin Corp. Statement of comprehensive income For the year ended December 31, 20X7 (in '000s) Sales revenue Cost of goods sold Gross profit Sales, general, and administrative expenses Interest expense Depreciation and amortization expense $2,498 647 1,851 1,174 90 215 372 218 590 177 413 Other income Earnings before income tax expense Income tax expense Net income Required: a) Use the acquisition method to allocate the acquisition differential and determine goodwill arising on acquisition, assuming that MPC uses the INA method to value the non-controlling interest (NCI). (2 marks) b) Use the acquisition method to allocate the acquisition differential and determine goodwill arising on acquisition, assuming that MPC uses the fair value enterprise (FVE) method to value the NCI. (2 marks) c) Based on the solution to part (a) (where MPC uses the INA method to value the NCI), prepare an acquisition differential amortization and impairment schedule for 20X7. Provide references for each line in the AD schedule that will be used to reference through to the consolidated financial statements. (2 marks) d) Prepare a list of all intercompany transactions and balances that are pertinent to the case facts and should be eliminated upon consolidation, Hint: There are six intercompany transactions that should be eliminated, five of which have two applicable parts (for example, note receivable/note payabie = one intercompany transaction). (0.5 marks) e) Calculate all unrealized and realized intercompany profits. (3.5 marks) • Provide references for each line in both the schedule of intercompany transactions and the schedule of unrealized/realized intercompany profits that will be used to reference through to the consolidated financial statements. • Include a calculation of the total deferred tax assetliability. Indicate whether the calculated figure is an asset or a liability. For parts (f) through (i), assume that MPC uses the INA method to value the NCI. Calculations done in earlier sections of Question 3 do not need to be redone on these worksheets. ) Prepare MPC's consolidated statement of comprehensive income for the year ended December 31, 20X7. Show the allocation between the parent and NCI. Include references to your supporting calculations, which will typically be the references in the supporting schedules prepared in parts (a) through € of Question 3. (6 marks) Note: From the Project Data file, copy and paste the template in the worksheet titled "Q3 Consolidated SCI 20X7" found in the Prep-AFR-ASNO6-WO0.DAT.1.G Excel file into your project submission. 9) Prepare MPC's consolidated statement of retained earnings for the year ended December 31, 20X7. (1 mark) h) Calculate the NCI on the statement of financial position as at December 31, 20X7. (1 mark) ) Prepare MPC's consolidated statement of financial position as at December 31, 20X7. Include references to your supporting calculations, which will typically be the references in the supporting schedules prepared in parts (a) through (h) of Question 3. (4 marks) Meek's Penguin Corp Consolidated statement of comprehensive income As at December 31, 20X7 MPC ZSI ADJ ADJ ADJ ADJ ADJ Consolidated Reference(s) Sales revenue 2,498,000 1,820,000 Cost of goods sold 647,000 845,000 1,851,000 1,174,000 Gross profit 975,000 Sales, general, and administrative expenses 533,000 Interest expense 90,000 30,000 Depreciation and amortization expense 215,000 52,000 Goodwill impairment loss 372,000 360,000 Other income 218,000 190,000 Earnings before taxes 590,000 550,000 Income tax expense 177,000 165,000 Consolidated net income 413,000 385,000 Meek's Penguin Corp. Consolidated statement of financial position For the year ended December 31 , 20X7 MPC ZSI ADJ ADJ ADJ Consolidated Reference(s) Cash 313,000 175.000 Accounts receivable and accruals 1,020,000 521,000 466,000 192,000 Inventory Note receivable 150.000 Land 790,000 80,000 228,000 120,000 Buildings (net) 989,000 Equipment (net) 474,000 Trademark 650,000 100,000 Investment 720,000 Deferred income tax asset Goodwill Total assets 5,422,000 1,566,000 Accounts payable and accruals 722,000 235,000 Long-term debt Note payable 1,875,000 600,000 150,000 Common shares 500,000 300,000 Retained earnings 2,175,000 431,000 Non-controlling interest 5,422,000 1,566,000 Meek's Penguin Corp. (MPC) is a Canadian company that reports its financial results in accordance with IFRS. On December 31, 20X6, MPC paid $720,000 cash to acquire 70% of Zoebug Supply Inc.'s (ZSI) outstanding common shares. ZS's comparative statement of financial position as at December 31, 20X7, and its statement of comprehensive income for the year ended December 31, 20X7, follow: Zoebug Supply Inc. Statement of financial position As at December 31 (in '000s) 20X6 $ 175 $ 61 406 20X7 Cash Accounts receivable and accruals 521 Inventory 192 183 Note receivable 150 220 240 160 100 $1.566 $1,370 Land 80 Building (net) Equipment (net) Trademark 228 120 100 Total assets $ 235 $ 264 600 300 206 21.370 Accounts payable and accruals Long-term debt 600 300 431 Common shares Retained earnings Total liabilities and equity $1.566 Zoebug Supply Inc. Statement of comprehensive income For the year ended December 31, 20X7 (in '000s) $1,820 845 975 533 30 52 360 190 550 165 $ 385 Sales revenue Cost of goods sold Gross profit Sales, general, and administrative expenses Interest expense Depreciation and amortization expense Other income Earnings before income tax expense Income tax expense Net income The fair value of Zsi's identifiable net assets at time of acquisition differed from its book value as indicated below (in $000s): Estimated Book value Dec. 31, 20X6 Fair value Dec. 31, 20X6 remaining useful life/term to Estimated maturity residual value Inventory Land Building (net) Equipment (net) Trademark Long-term debt 183 220 240 160 100 600 213 N/A N/A N/A 390 200 176 300 620 N/A 20 years 4 years N/A 4 years so N/A Additional information: 1. Both companies pay income tax at a rate of 30% 2. Both companies use the FIFO cost-flow assumption to value their inventories. 3. Both companies depreciate their depreciable assets on a straight-line basis. 4. The fair value increment on the long-term debt is amortized using the straight-line method. 5. For impairment-testing purposes, MPC established that ZSl is a CGU. MPC tested the CGU for impairment on December 31, 20X7. Goodwill, as calculated using the identifiable net assets (INA) method, was found to be impaired by $18,000. 6. On December 31, 20X7, ZSI sold land to MPC for $155,000. ZS's net book value at time of sale was $140,000, which was the same as the estimated fair value at acquisition date of the subsidiary (December 31, 20X6). In consideration of the transfer, MPC paid $5,000 cash and signed a note payable to ZSI for the $150,000 balance. The note is payable in full on December 31, 20X9. Interest at 4% per annum, payable annually, is first payable on December 31, 20X8. This is the market rate of interest for a note of this length. 7. During 20X7, MPC sold goods to ZSI for $200,000 with a 40% gross profit margin; 10% of these goods remained unsold by ZSI as at December 31, 20X7. 8. During 20X7, ZSI sold goods that it had purchased for $100,000 to MPC for $140,000: 25% of these goods remained unsold by MPC as at December 31, 20X7. 9. During 20X7, ZSI rented office space from MPC at a total cost of $50,000. This amount remained unpaid at year end. 10. MPC purchased new oquipment on January 1, 20X7 and immediately sold it to ZSı for $40,000 cash. MPC's cost of the equipment, which had a useful life of five years, was $36,000. 11. MPC and ZSI only prepare accruals and other adjusting entries at year end. MPC's non-consolidated comparative statement of financial position as at December 31, 20X7, and its non-consolidated statement of comprehensive income for the year ended December 31, 20X7, are set out below:. Meek's Penguin Corp. Statement of financial position As at December 31 (in '000s) 20X7 20X6 8 968 422 640 1,041 632 650 720 $5.081 $ 313 1,020 466 790 Cash Accounts receivable and accruals Inventory Land 989 Building (net) Equipment (net) Trademark Investment Total assets 474 650 720 $5.422 $ 722 1,875 150 500 2.175 $5.422 $ 669 1,950 Accounts payable and accruals Long-term debt Note payable Common shares Retained earnings Total liabilities and equity 500 1,962 $5.081 Meek's Penguin Corp. Statement of comprehensive income For the year ended December 31, 20X7 (in '000s) Sales revenue Cost of goods sold Gross profit Sales, general, and administrative expenses Interest expense Depreciation and amortization expense $2,498 647 1,851 1,174 90 215 372 218 590 177 413 Other income Earnings before income tax expense Income tax expense Net income Required: a) Use the acquisition method to allocate the acquisition differential and determine goodwill arising on acquisition, assuming that MPC uses the INA method to value the non-controlling interest (NCI). (2 marks) b) Use the acquisition method to allocate the acquisition differential and determine goodwill arising on acquisition, assuming that MPC uses the fair value enterprise (FVE) method to value the NCI. (2 marks) c) Based on the solution to part (a) (where MPC uses the INA method to value the NCI), prepare an acquisition differential amortization and impairment schedule for 20X7. Provide references for each line in the AD schedule that will be used to reference through to the consolidated financial statements. (2 marks) d) Prepare a list of all intercompany transactions and balances that are pertinent to the case facts and should be eliminated upon consolidation, Hint: There are six intercompany transactions that should be eliminated, five of which have two applicable parts (for example, note receivable/note payabie = one intercompany transaction). (0.5 marks) e) Calculate all unrealized and realized intercompany profits. (3.5 marks) • Provide references for each line in both the schedule of intercompany transactions and the schedule of unrealized/realized intercompany profits that will be used to reference through to the consolidated financial statements. • Include a calculation of the total deferred tax assetliability. Indicate whether the calculated figure is an asset or a liability. For parts (f) through (i), assume that MPC uses the INA method to value the NCI. Calculations done in earlier sections of Question 3 do not need to be redone on these worksheets. ) Prepare MPC's consolidated statement of comprehensive income for the year ended December 31, 20X7. Show the allocation between the parent and NCI. Include references to your supporting calculations, which will typically be the references in the supporting schedules prepared in parts (a) through € of Question 3. (6 marks) Note: From the Project Data file, copy and paste the template in the worksheet titled "Q3 Consolidated SCI 20X7" found in the Prep-AFR-ASNO6-WO0.DAT.1.G Excel file into your project submission. 9) Prepare MPC's consolidated statement of retained earnings for the year ended December 31, 20X7. (1 mark) h) Calculate the NCI on the statement of financial position as at December 31, 20X7. (1 mark) ) Prepare MPC's consolidated statement of financial position as at December 31, 20X7. Include references to your supporting calculations, which will typically be the references in the supporting schedules prepared in parts (a) through (h) of Question 3. (4 marks) Meek's Penguin Corp Consolidated statement of comprehensive income As at December 31, 20X7 MPC ZSI ADJ ADJ ADJ ADJ ADJ Consolidated Reference(s) Sales revenue 2,498,000 1,820,000 Cost of goods sold 647,000 845,000 1,851,000 1,174,000 Gross profit 975,000 Sales, general, and administrative expenses 533,000 Interest expense 90,000 30,000 Depreciation and amortization expense 215,000 52,000 Goodwill impairment loss 372,000 360,000 Other income 218,000 190,000 Earnings before taxes 590,000 550,000 Income tax expense 177,000 165,000 Consolidated net income 413,000 385,000 Meek's Penguin Corp. Consolidated statement of financial position For the year ended December 31 , 20X7 MPC ZSI ADJ ADJ ADJ Consolidated Reference(s) Cash 313,000 175.000 Accounts receivable and accruals 1,020,000 521,000 466,000 192,000 Inventory Note receivable 150.000 Land 790,000 80,000 228,000 120,000 Buildings (net) 989,000 Equipment (net) 474,000 Trademark 650,000 100,000 Investment 720,000 Deferred income tax asset Goodwill Total assets 5,422,000 1,566,000 Accounts payable and accruals 722,000 235,000 Long-term debt Note payable 1,875,000 600,000 150,000 Common shares 500,000 300,000 Retained earnings 2,175,000 431,000 Non-controlling interest 5,422,000 1,566,000 Meek's Penguin Corp. (MPC) is a Canadian company that reports its financial results in accordance with IFRS. On December 31, 20X6, MPC paid $720,000 cash to acquire 70% of Zoebug Supply Inc.'s (ZSI) outstanding common shares. ZS's comparative statement of financial position as at December 31, 20X7, and its statement of comprehensive income for the year ended December 31, 20X7, follow: Zoebug Supply Inc. Statement of financial position As at December 31 (in '000s) 20X6 $ 175 $ 61 406 20X7 Cash Accounts receivable and accruals 521 Inventory 192 183 Note receivable 150 220 240 160 100 $1.566 $1,370 Land 80 Building (net) Equipment (net) Trademark 228 120 100 Total assets $ 235 $ 264 600 300 206 21.370 Accounts payable and accruals Long-term debt 600 300 431 Common shares Retained earnings Total liabilities and equity $1.566 Zoebug Supply Inc. Statement of comprehensive income For the year ended December 31, 20X7 (in '000s) $1,820 845 975 533 30 52 360 190 550 165 $ 385 Sales revenue Cost of goods sold Gross profit Sales, general, and administrative expenses Interest expense Depreciation and amortization expense Other income Earnings before income tax expense Income tax expense Net income The fair value of Zsi's identifiable net assets at time of acquisition differed from its book value as indicated below (in $000s): Estimated Book value Dec. 31, 20X6 Fair value Dec. 31, 20X6 remaining useful life/term to Estimated maturity residual value Inventory Land Building (net) Equipment (net) Trademark Long-term debt 183 220 240 160 100 600 213 N/A N/A N/A 390 200 176 300 620 N/A 20 years 4 years N/A 4 years so N/A Additional information: 1. Both companies pay income tax at a rate of 30% 2. Both companies use the FIFO cost-flow assumption to value their inventories. 3. Both companies depreciate their depreciable assets on a straight-line basis. 4. The fair value increment on the long-term debt is amortized using the straight-line method. 5. For impairment-testing purposes, MPC established that ZSl is a CGU. MPC tested the CGU for impairment on December 31, 20X7. Goodwill, as calculated using the identifiable net assets (INA) method, was found to be impaired by $18,000. 6. On December 31, 20X7, ZSI sold land to MPC for $155,000. ZS's net book value at time of sale was $140,000, which was the same as the estimated fair value at acquisition date of the subsidiary (December 31, 20X6). In consideration of the transfer, MPC paid $5,000 cash and signed a note payable to ZSI for the $150,000 balance. The note is payable in full on December 31, 20X9. Interest at 4% per annum, payable annually, is first payable on December 31, 20X8. This is the market rate of interest for a note of this length. 7. During 20X7, MPC sold goods to ZSI for $200,000 with a 40% gross profit margin; 10% of these goods remained unsold by ZSI as at December 31, 20X7. 8. During 20X7, ZSI sold goods that it had purchased for $100,000 to MPC for $140,000: 25% of these goods remained unsold by MPC as at December 31, 20X7. 9. During 20X7, ZSI rented office space from MPC at a total cost of $50,000. This amount remained unpaid at year end. 10. MPC purchased new oquipment on January 1, 20X7 and immediately sold it to ZSı for $40,000 cash. MPC's cost of the equipment, which had a useful life of five years, was $36,000. 11. MPC and ZSI only prepare accruals and other adjusting entries at year end. MPC's non-consolidated comparative statement of financial position as at December 31, 20X7, and its non-consolidated statement of comprehensive income for the year ended December 31, 20X7, are set out below:. Meek's Penguin Corp. Statement of financial position As at December 31 (in '000s) 20X7 20X6 8 968 422 640 1,041 632 650 720 $5.081 $ 313 1,020 466 790 Cash Accounts receivable and accruals Inventory Land 989 Building (net) Equipment (net) Trademark Investment Total assets 474 650 720 $5.422 $ 722 1,875 150 500 2.175 $5.422 $ 669 1,950 Accounts payable and accruals Long-term debt Note payable Common shares Retained earnings Total liabilities and equity 500 1,962 $5.081 Meek's Penguin Corp. Statement of comprehensive income For the year ended December 31, 20X7 (in '000s) Sales revenue Cost of goods sold Gross profit Sales, general, and administrative expenses Interest expense Depreciation and amortization expense $2,498 647 1,851 1,174 90 215 372 218 590 177 413 Other income Earnings before income tax expense Income tax expense Net income Required: a) Use the acquisition method to allocate the acquisition differential and determine goodwill arising on acquisition, assuming that MPC uses the INA method to value the non-controlling interest (NCI). (2 marks) b) Use the acquisition method to allocate the acquisition differential and determine goodwill arising on acquisition, assuming that MPC uses the fair value enterprise (FVE) method to value the NCI. (2 marks) c) Based on the solution to part (a) (where MPC uses the INA method to value the NCI), prepare an acquisition differential amortization and impairment schedule for 20X7. Provide references for each line in the AD schedule that will be used to reference through to the consolidated financial statements. (2 marks) d) Prepare a list of all intercompany transactions and balances that are pertinent to the case facts and should be eliminated upon consolidation, Hint: There are six intercompany transactions that should be eliminated, five of which have two applicable parts (for example, note receivable/note payabie = one intercompany transaction). (0.5 marks) e) Calculate all unrealized and realized intercompany profits. (3.5 marks) • Provide references for each line in both the schedule of intercompany transactions and the schedule of unrealized/realized intercompany profits that will be used to reference through to the consolidated financial statements. • Include a calculation of the total deferred tax assetliability. Indicate whether the calculated figure is an asset or a liability. For parts (f) through (i), assume that MPC uses the INA method to value the NCI. Calculations done in earlier sections of Question 3 do not need to be redone on these worksheets. ) Prepare MPC's consolidated statement of comprehensive income for the year ended December 31, 20X7. Show the allocation between the parent and NCI. Include references to your supporting calculations, which will typically be the references in the supporting schedules prepared in parts (a) through € of Question 3. (6 marks) Note: From the Project Data file, copy and paste the template in the worksheet titled "Q3 Consolidated SCI 20X7" found in the Prep-AFR-ASNO6-WO0.DAT.1.G Excel file into your project submission. 9) Prepare MPC's consolidated statement of retained earnings for the year ended December 31, 20X7. (1 mark) h) Calculate the NCI on the statement of financial position as at December 31, 20X7. (1 mark) ) Prepare MPC's consolidated statement of financial position as at December 31, 20X7. Include references to your supporting calculations, which will typically be the references in the supporting schedules prepared in parts (a) through (h) of Question 3. (4 marks) Meek's Penguin Corp Consolidated statement of comprehensive income As at December 31, 20X7 MPC ZSI ADJ ADJ ADJ ADJ ADJ Consolidated Reference(s) Sales revenue 2,498,000 1,820,000 Cost of goods sold 647,000 845,000 1,851,000 1,174,000 Gross profit 975,000 Sales, general, and administrative expenses 533,000 Interest expense 90,000 30,000 Depreciation and amortization expense 215,000 52,000 Goodwill impairment loss 372,000 360,000 Other income 218,000 190,000 Earnings before taxes 590,000 550,000 Income tax expense 177,000 165,000 Consolidated net income 413,000 385,000 Meek's Penguin Corp. Consolidated statement of financial position For the year ended December 31 , 20X7 MPC ZSI ADJ ADJ ADJ Consolidated Reference(s) Cash 313,000 175.000 Accounts receivable and accruals 1,020,000 521,000 466,000 192,000 Inventory Note receivable 150.000 Land 790,000 80,000 228,000 120,000 Buildings (net) 989,000 Equipment (net) 474,000 Trademark 650,000 100,000 Investment 720,000 Deferred income tax asset Goodwill Total assets 5,422,000 1,566,000 Accounts payable and accruals 722,000 235,000 Long-term debt Note payable 1,875,000 600,000 150,000 Common shares 500,000 300,000 Retained earnings 2,175,000 431,000 Non-controlling interest 5,422,000 1,566,000

Answer rating: 100% (QA)

a Controlling interest 70720000 NCI 3030857143 Total102857143 Book value of net assets506000 Undervaluation of inventory30000 Undervaluation of land170000 Undervaluation of equipment16000 Overvaluatio... View the full answer