The following financial statements were prepared on December 31, Year 6: Prancer Inc. Sendry Inc. Cash &
Question:
The following financial statements were prepared on December 31, Year 6:
Prancer Inc. Sendry Inc.
Cash & Short-Term Securities $ 390,000 $ 190,000
Accounts Receivable 290,000 -
Inventory 2,450,000 510,000
Property, plant & equipment 2,610,000 3,190,000
Investment in Sendry Inc. – at cost 3,300,000 -
Total Assets $9,040,000 $3,890,000
Current Liabilities $ 737,000 $ 543,000
Common Shares 3,750,000 2,050,000
Retained Earnings 4,553,000 1,297,000
Total Liabilities and Equity $9,040,000 $3,890,000
Prancer Inc. Sendry Inc.
Sales $4,300,000 $1,225,000
Other Income 150,000 225,000
Gain on Sale of Land 150,000
Dividend income 232,000 -
4,832,000 1,450,000
Cost of sales 2,590,000 490,000
Amortization expenses 215,000 49,000
Miscellaneous expenses 300,000 30,000
Administrative expense 89,000 19,000
Income tax expense 295,000 165,000
Net Income $1,343,000 $ 697,000
Balance, January 1 $3,800,000 $ 890,000
Net Income 1,343,000 697,000
5,143,000 1,587,000
Dividends 590,000 290,000
Balance, December 31 $4,553,000 $1,297,000
Additional Information:
- Prancer purchased 80% of the outstanding voting shares of Sendry for $3,300,000 on January 1, Year 2, at which time Sendry’s retained earnings were $445,000, and common shares were $2,050,000. The fair values of Sendry’s net asset were equal to their fair value, except for the following:
- Inventory = fair value was $325,000 greater than book value
- Equipment = fair value was $560,000 greater than book value - equipment had a remaining useful life eight years
- During Year 3, a goodwill impairment loss of $79,000 was recognized, and an impairment test conducted as of December 31, Year 6, indicated that a further loss of $31,000 had occurred.
- During Year 6, inventory sales from Sendry to Prancer were $1,000,000. At year-end, Prancer’s inventories contained merchandise purchased from Sendry for $500,000. Opening inventory for Prancer contained $250,000 of merchandise purchased from Sendry. A gross margin of 40% is recognized on its intercompany sales.
- During Year 6, Prancer sold a parcel of land for $750,000. Prancer recorded a gain of $350,000 before taxes.
- Sendry paid out $290,000 in dividends and Prancer recorded $232,000 ($290,000 * 80%) of dividend revenue in year 6. Any impairment losses are grouped with administrative expenses.
- Sendry paid $10,000 during the year to Prancer for consulting services. (Sendry has recorded this amount in Administrative Expenses)
Required:
- Calculate the amount of the acquisition differential and the amount of goodwill arising from this combination.
- Calculate:
- Consolidated Net Income attributable to Prancer’s Shareholders
- Consolidated Retained Earnings for December 31, Year 6
- NCI for December 31, Year 6
- Prepare the Consolidated Income Statement for the year ended December 31, Year 6.
Modern Advanced Accounting in Canada
ISBN: 978-1259087554
8th edition
Authors: Hilton Murray, Herauf Darrell