On January 1, 2014, Poplar Incorporated purchased 66,500 of the 95,000 outstanding common shares of Sycamore Limited
Question:
On January 1, 2014, Poplar Incorporated purchased 66,500 of the 95,000 outstanding common shares of Sycamore Limited (a 70% interest) for a cash payment of $700,000. On that date, Sycamore had share capital of $800,000 and retained earnings of $112,000. Any acquisition differential was classified as goodwill.
During 2014, Sycamore Limited reported net income of $120,000 earned evenly over the year and paid dividends of $40,000 on April 1 and an additional $50,000 on October 1.
On July 1, 2014, Poplar purchased an additional 5,000 common shares directly from Sycamore
Limited (increasing the number of shares outstanding to 100,000). The cost of the additional shares was $50,000.
Poplar accounts for its investment in Sycamore using the cost method and valued the noncontrolling interest in Sycamore on the acquisition date based on its fair value, proportionate to the
amount paid for its controlling interest.
Following are the condensed balance sheets of the two companies at December 31, 2014:
Required:
Prepare a consolidated balance sheet for Poplar and its subsidiary as at December 31, 2014. (Hint: The acquisition of the additional shares by Poplar did not change the consolidated cash balances as the money was paid by the parent to the subsidiary.)
Financial Reporting and Analysis
ISBN: 978-0078025679
6th edition
Authors: Flawrence Revsine, Daniel Collins, Bruce, Mittelstaedt, Leon