On January 1, Year 1, Mio Company acquired 1,000 ordinary shares of Aaron Com pany for $12,000
Question:
On January 1, Year 1, Mio Company acquired 1,000 ordinary shares of Aaron Com pany for $12,000 when the shareholders’ equity of Aaron was as follows:
Ordinary shares (10,000 no par value shares issued and outstanding) | $50,000 |
Retained earnings | 40,000 |
$90,000 | |
In addition, Mio had the following investments and divestments in Aaron: |
Date | Action | # of shares | Price |
Jan. 1, Year 2 | Bought | 2,000 | 26,000 |
Jan. 1, Year 3 | Bought | 2,500 | 35,000 |
Jan. 1, Year 4 | Bought | 3,000 | 45,000 |
Jan. 1, Year 5 | Sold | 1,500 | 24,000 |
The following are the statements of retained earnings for Mio from Year 1 to Y ear 5:
Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
Retained earnings, beginning of year | $70,000 | $78,000 | $87,000 | $ 96,000 | $105,000 |
Profit | 17,000 | 18,000 | 19,000 | 20,000 | 21,000 |
Dividends | (9,000) | (9,000) | (10,000) | (11,000) | (12,000) |
Retained earnings, end of year | $78,000 | $87,000 | $96,000 | $105,000 | $114,000 |
he following are the statements of retained earnings for Aaron from Year 1 to Year 5:
Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
Retained earnings, beginning of year | $40,000 | $44,000 | $48,000 | $52,000 | $57,000 |
Profit | 10,000 | 11,000 | 12,000 | 13,000 | 14,000 |
Dividends | (6,000) | (7,000) | (8,000) | (8,000) | (10,000) |
Retained earnings, end of year | $44,000 | $48,000 | $52,000 | $57,000 | $61,000 |
Additional Information
• For internal record keeping purposes, Mio uses the cost method to account for its investment in Aaron.
• Aaron’s ordinary shares are publicly traded. The market value of the shares at the close on December 31 of one year was the same as the market value on January 1 of the next year.
• Any acquisition differential is allocated to patents with a life expectancy until December 31, Year 8. Neither company has any patents recorded on their separate entity records.
• There were no unrealized profits from intercompany transactions since the date of acquisition.
Required:
A. For each of Years 1 to 5, determine and prepare the following items for Mio’s general purpose financial statements prepared in accordance with IFRSs:
(a) Method to be used to report the investment in Aaron and the balance in the investment account under the relevant reporting method
(b) Net income attributable to the shareholders of Mio
(c) Patents
(d) Non controlling interests on the balance sheet
(e) Statement of retained earnings
B. Prepare a schedule to show that the difference in the investment account between the cost and equity methods is equal to the difference in the sum of retained earnings (RE) and contributed surplus between the cost and equity methods for each of Years 1 through 5.
Modern Advanced Accounting in Canada
ISBN: 978-1259087554
7th edition
Authors: Hilton Murray, Herauf Darrell