Road Runner Ltd purchased a 52% interest Coyote Ltd for $1,300,000. At the time of purchase, Coyote Ltd had a common stock of $1,800,000 and retained earnings of $560,000. However, after examining the assets and liabilities of Coyote Ltd it was determined that their book value was equal to their fair value except for equipment and land as indicated below.

Book Value	Fair Value	Difference
Equipment	84,000	98,000	14,000
Land	230,000	264,000	34,000

Required: 

(a) Prepare a computation and allocation schedule for the difference between book value of equity acquired and the value implied in the purchase price 

(b) the worksheet journal entries to eliminate the investment, recognize the non-controlling interesting and to allocate the difference between implied and book value. (2 marks)

2. Bugs Bunny Ltd owns 82% of Big Bird Ltd. During 2018 Big Bird Ltd sold $556,000 worth of inventory at a 40% gross profit to its parent company Bugs Bunny Ltd. At the end of the financial year 47% of this inventory remains unsold by Bugs Bunny Ltd. How much gross profit will the non-controlling interest receive as a result of these sales? (1 mark)

3. Road Runner Ltd owns 73% of Coyote Ltd. During 2018 Coyote Ltd sold $405,000 worth of inventory to Road Runner Ltd. Coyote Ltd has a gross profit percentage of 30% and Road Runner Ltd has a gross profit percentage of 20%. At the end of the financial year half of this inventory remained unsold. How much unrealized profit should be eliminated from ending inventory at year end? (1 mark)

4. Mickey Mouse Ltd owns 85% of Donald Duck Ltd. During 2018 Mickey Mouse Ltd sells inventory for $750,000 to Donald Duck Ltd at a mark-up of 25% above cost. At the end of the financial year 50% of the inventory was unsold. What is the work paper journal entry to eliminate the effects of the intercompany sale? (1 mark)

5. Goldilocks Ltd has six (6) operating segments: Paper, Machinery, Concrete, Timber, Steel, Paint, and no inter-segment sales. The following information is provided about these six segments.

Segment	Operating Profit or Loss	Non-Affiliate Sales	Identifiable Assets
Paper	(1,600)	6,400	19,400
Machinery	(2,400)	5,600	7,200
Concrete	44,000	24,000	36,000
Timber	2,200	4,000	12,000
Steel	24,000	8,000	82,000
Paint	1,800	18,000	18,000

1. Using the revenue test, determine which of the operating segments are reportable segments? (0.5 mark)

2. Using the operating profit test, determine which of the operating segments are reportable segments?

3. Using the asset test, determine which of the operating segments are reportable segments?

4. Using your answers from 1-3 and using the 75% combined revenue test determine the number of reportable segments.

6. On November 10, 2017 Goofy Ltd buys some inventory from a French supplier to be paid for in Euros (€) two months later on January 10, 2018. Payment was to be for €125,000. The spot rates for the €1 are as follows:

November 10, 2017, transaction date, spot rate was $1.07/ €1

December 31, 2017 balance date, spot rate was $1.09/€1

January 10, 2018, settlement date, spot rate was $1.05/€1.

If Goofy Ltd does not hedge the transaction, please demonstrate what journal entries Goofy Ltd would have to prepare on the transaction date, balance date and settlement date?

Answer rating: 100% (QA)

ANSWER 1 a Computation and Allocation Schedule for the Difference Book Value Fair Value Difference E... View the full answer