Contents Of Assignment Problems - castore.ca · Contents Of Assignment Problems Problems For Chapter 2 1 ... Canadian Advanced Accounting (2nd IC Edition) - Assignment Problems Assignment

Contents Of Assignment Problems

Problems For Chapter 2 1Assignment Problem Two - 1

(Held-For-Trading and Available-For-Sale) 1

Assignment Problem Two - 2(Fair Value And Equity Methods) . . . . 1

Assignment Problem Two - 3(Cost And Equity Methods) . . . . . . 2

Assignment Problem Two - 4(Classification Of Equity Securities) . . . 3

Problems For Chapter 3 4Assignment Problem Three - 1

(Purchase Of Assets) . . . . . . . . . 4

Assignment Problem Three - 2 (ContingentConsideration, GAAP Conversion) . . . 4

Assignment Problem Three - 3(Three Companies, Three Cases) . . . . 6

Assignment Problem Three - 4(Complex Business Combination) . . . . 7

Problems For Chapter 4 9Assignment Problem Four - 1

(Consolidated Balance Sheet at Acquisition- NCI On Identifiable Assets) . . . . . 9

Assignment Problem Four - 2(Consolidated Balance Sheet at Acquisition- NCI At Fair Value) . . . . . . . . 10

Problems For Chapter 5 11Assignment Problem Five - 1

(Open Trial Balance - NCI On Assets- Equity Method Calculations) . . . . 11

Assignment Problem Five - 2(Open Trial Balance - NCI At Fair Value- No Balance Sheet) . . . . . . . . 13

Assignment Problem Five - 3 (ConsolidatedCash Flow Statement - No Profits) . . . 15

Assignment Problem Five - 4(Step Acquisition - No Profits) . . . . 16

Problems For Chapter 6 18Assignment Problem Six - 1 (Open Trial

Balance - Profits - NCI At Fair Value) . . 18

Assignment Problem Six - 2(Income Statement And Balance SheetItems - NC On Assets) . . . . . . . 20

Problems For Chapter 6, continuedAssignment Problem Six - 3 (Consolidated

Cash Flow Statement - Profits) . . . . 21

Assignment Problem Six - 4 (CompletedConsolidated Statements With Questions) 23

Problems For Chapter 8 27Assignment Problem Eight - 1 (Capital

Contributions To Joint Ventures) . . . 27

Assignment Problem Eight - 2(Proportionate Consolidation- No Intercompany Profits) . . . . . . 28

Assignment Problem Eight - 3(Proportionate Consolidation- Intercompany Profits) . . . . . . . 29

Problems For Chapter 9 31Assignment Problem Nine - 1

(Translation Of Long-Term Debt) . . . 31

Assignment Problem Nine - 2(Foreign Currency Investments) . . . . 31

Assignment Problem Nine - 3(Hedging Transactions - Various Cases) . 32

Problems For Chapter 10 34Assignment Problem Ten - 1

(Income Statement Translation) . . . . 34

Assignment Problem Ten - 2(Translation O Financial Statements- Integrated Foreign Operation) . . . . 35

Assignment Problem Ten - 3(Translation Of Financial Statements) . . 37

Assignment Problem Ten - 4(Translation And ConsolidationOf Foreign Subsidiary) . . . . . . . 39

Problems For Chapter 11 42Assignment Problem Eleven - 1

(Restricted Fund And Deferral MethodAccounting) . . . . . . . . . . . 42

Assignment Problem Eleven - 2(Fund Accounting) . . . . . . . . . 44

Assignment Problem Eleven - 3(Accounting Recommendations) . . . . 46

Assignment Problems For Chapter 2(The solutions for these problems are only available in

the solutions manual that has been provided to your instructor.)

Assignment Problem Two - 1(Held-For-Trading and Available-For-Sale Investments)On December 31, 2008, Vonex Ltd. acquires 4,200 of the outstanding voting shares of MorexInc. at a cost of $72.00 per share. Vonex Ltd. pays no transaction costs on its purchase or saleof Morex Inc. shares. Vonex has a December 31 year end.

During the year ending December 31, 2009, Morex Inc. declares and pays dividends of $1.05per share.

On December 31, 2009, the Morex shares are trading at $78.00 per share.

On May 1, 2010, Vonex sells the 4,200 Morex shares for proceeds of $56.00 per share. Morexdid not declare any 2010 dividends prior this disposition.

Required: For the period December 31, 2008 through May 1, 2010, provide the datedjournal entries to account for the Morex shares, and calculate the effect of the investment inMorex shares on Venox’s Net Income under the following assumptions:

A. Venox classifies the investment in Morex shares as held for trading.

B. Venox classifies the investment in Morex shares as available for sale.

Assignment Problem Two - 2 (Fair Value And Equity Methods)On December 31, 2007, the Miser Company purchased 25 percent of the outstanding votingshares of the Mercy Company, a public company, for $4 million in cash. On the acquisitiondate, all of the net identifiable assets of the Mercy Company had fair values that were equal totheir carrying values. The carrying value of Mercy Company’s net assets was $16 million.

Mercy’s Net Income, dividends declared and paid, and the December 31 market value of itsoutstanding shares, for the year of acquisition and the three subsequent years are as follows:

Net Income Dividends December 31 MarketYear (Net Loss) Declared And Paid Price (100 Percent)

2007 $ 600,000 $ 600,000 $16,000,0002008 ( 2,000,000) 400,000 17,600,0002009 1,500,000 500,000 15,500,0002010 3,000,000 1,000,000 18,200,000

Both Companies close their books on December 31. The 2010 Income Before ExtraordinaryItems of the Mercy Company was $3,800,000. This was reduced by an $800,000 Extraordi-nary Loss, leaving the Net Income figure of $3,000,000 that is shown in the preceding table.There were no intercompany transactions, other than dividend payments, during any of theyears under consideration.

Required: Provide the Miser Company’s dated journal entries to account for its investment inthe Mercy Company for each of the four years and the December 31, 2010 balance in theInvestment in Mercy account assuming that:

Canadian Advanced Accounting (2nd IC Edition) - Assignment Problems

Assignment Problems For Chapter 2

Page 1

A. Miser Company’s 25 percent holding does not give it significant influence in the opera-tions of Mercy Company. Miser classifies the investment as held for trading.

B. Miser Company’s 25 percent holding does not give it significant influence in the opera-tions of Mercy Company. Miser classifies the investment as available for sale.

C. Miser Company’s 25 percent holding gives it significant influence in the operations ofMercy Company.

Assignment Problem Two - 3 (Cost And Equity Methods)On January 1, 2007, Tribble Company purchased 40 percent of the outstanding voting sharesof the Marcus Company for $320,000 in cash. On that date, Marcus had Common Stock - NoPar of $500,000, Retained Earnings of $300,000 and all of its identifiable assets and liabilitieshad fair values that were equal to their carrying values. This investment gives Tribble signifi-cant influence over the affairs of Marcus.

Between January 1, 2007 and December 31, 2009, Marcus had Net Income and paid divi-dends as follows:

2007 2008 2009

Net Income (Loss) $300,000 ($400,000) $320,000Dividends 100,000 50,000 70,000

There were no extraordinary items or prior period adjustments for Marcus in the three years2007 through 2009. For the year ending December 31, 2010, the Income Statements of theTribble and Marcus Companies, before recognition of any investment income, were asfollows:

Tribble and Marcus CompaniesIncome Statements

For the Year Ending December 31, 2010

Tribble Marcus

Sales $2,300,000 $850,000Other Revenues 200,000 Nil

Total Revenues $2,500,000 $850,000

Cost Of Goods Sold $1,000,000 $500,000Other Expenses 500,000 80,000

Total Expenses $1,500,000 $580,000

Income Before Discontinued Operations $1,000,000 $270,000Loss From Discontinued Operations Nil ( 20,000)

Net Income $1,000,000 $250,000

During 2010, Marcus initiated a change in accounting policy. The change was accounted forretroactively, through an adjustment of the Company’s opening Retained Earnings balance inthe amount of $700,000.

Tribble declared $150,000 in dividends in 2010. Marcus declared and paid dividends of$120,000 in 2010. Assuming the use of the cost method to account for its Investment inMarcus since its acquisition, Tribble has a Retained Earnings balance of $4,600,000 onJanuary 1, 2010.



Page 2

Required: Prepare the dated journal entries for the Tribble Company related to its investmentin the Marcus Company for the years 2007 through 2010, the Income Statement for theTribble Company for the year ending December 31, 2010, and the Statement of RetainedEarnings for the Tribble Company for the year ending December 31, 2010 assuming:

A. that the Tribble Company is a qualifying enterprise and uses the Section 3051 differentialreporting option to account for its Investment In Marcus by the cost method.

B. that the Tribble Company is not a qualifying enterprise and, since it was acquired, theInvestment In Marcus has been carried by the equity method. (This will require a recalcu-lation of the January 1, 2010 Retained Earnings balance of Tribble.)

Assignment Problem Two - 4 (Classification Of Equity Securities)Small World Limited owns a chain of retail stores which sell children’s books and toys. ThePresident of Small World, Ted Kidd, hopes that his Company will eventually achieve verticalintegration with many of its suppliers. At the moment, Small World owns 52 percent of theoutstanding voting shares of Blocks N Things, a toy wholesaler.

Blocks N Things owns 22 percent of the outstanding common shares and 53 percent of theoutstanding non-participating preferred shares of Craftco Limited, a manufacturer of woodentoys. Craftco’s shares are traded in an active market.

The Craftco preferred shares do not contain a mandatory redemption provision. No otherCraftco shareholder, or group of related shareholders, holds preferred or common shares tothe same extent as Blocks N Things.

Craftco currently owns 13 percent of the outstanding common shares of Delta Inc., a majorCanadian pulp and paper company. The market value of Delta’s shares has decreasedsubstantially since acquisition.

Small World Limited also owns 40 percent of the outstanding common shares of Delta Inc.

Required: Describe and justify the recommended accounting treatment for each of theinvestments, including those made by Small World Limited’s investees.



Page 3



Assignment Problem Three - 1 (Purchase Of Assets)On December 31, 2009, the assets and liabilities of the Davis Company and the JonesCompany have fair values and book values as follows:

Davis and Jones CompaniesBalance Sheets

As At December 31, 2009

Davis Jones

Book Value Fair Value Book Value Fair Value

Cash $ 450,000 $ 450,000 $ 375,000 $ 375,000Accounts Receivable 560,000 545,000 420,000 405,000Inventories 1,200,000 1,150,000 875,000 950,000Net Plant And Equipment 2,800,000 3,200,000 1,575,000 1,250,000

Total Assets $5,010,000 $5,345,000 $3,245,000 $2,980,000

Current Liabilities $ 325,000 $ 325,000 $ 295,000 $ 295,000Bonds Payable 1,200,000 1,400,000 870,000 910,000Future Income Tax Liability 780,000 N/A 430,000 N/ANo Par Common Stock 2,100,000 N/A 1,200,000 N/ARetained Earnings 605,000 N/A 450,000 N/A

Total Equities $5,010,000 $3,245,000

The No Par Common Stock of the Davis Company, prior to the business combination, consistsof 42,000 shares issued at an average price of $50 per share. The No Par Common Stock of theJones Company consists of 60,000 shares issued at an average price of $20 per share.

On December 31, 2009, the Davis Company issues 30,000 shares of its No Par Common Stockin return for all of the assets and liabilities of the Jones Company. On this date the DavisCompany shares are trading at $65 per share while the Jones Company shares are trading at$32.50 per share.

Required: Prepare the December 31, 2009 Balance Sheet that would be required for thecombined company resulting from the business combination transaction.

Assignment Problem Three - 2 (Contingent Consideration, GAAP Conversion)On December 31, 2009, Public Ltd. acquires all of the outstanding shares of Private Inc. Theconsideration consists of 100,000 Public Ltd. shares plus $1,300,000 in cash. At the time ofissue, the Public Ltd. shares are trading at $10.50. As part of the acquisition contract, PublicLtd. agrees that, if by the end of 2010 their shares are not trading at a price of $12.00 or more,it will pay an additional $150,000 in cash to the former shareholders of Private Inc. Publicmanagement estimates the fair value of this contingent payment to be $60,000 on December31, 2009.



Page 4

On December 31, 2009, the pre-business combination Balance Sheets of the two Companiesare as follows:

Public Ltd. and Private Inc.Balance Sheets


Public Ltd. Private Inc.

Cash $1,892,000 $ 342,000Accounts Receivable 767,000 NilInventories 1,606,000 641,000Land 462,000 107,000Plant And Equipment - Cost 3,272,000 2,727,000Accumulated Amortization ( 1,203,000) ( 776,000)Patent N/A 103,000Goodwill 372,000 N/A

Total Assets $7,168,000 $3,144,000

Current Liabilities $ 458,000 NilBonds Payable - Par 1,507,000 $ 800,000Bond Payable - Premium 48,000 23,000Public Common Stock - No Par (250,000 Shares) 2,500,000 N/APrivate Common Stock - No Par N/A 1,200,000Retained Earnings 2,655,000 1,121,000

Total Equities $7,168,000 $3,144,000

Other Information:

1. The stock of Public Ltd. is traded on a national stock exchange. As a consequence, theyare required to prepare audited financial statements. Private Inc. is a Canadiancontrolled private corporation and has never needed audited financial statements.

2. As there has been no need for Private Inc. to comply with generally accepted accountingprinciples (GAAP), the Company records revenues and current expenses on a cash basis.After some investigation, it is determined that on January 1, 2009, Private Inc. had unre-corded Accounts Receivable of $220,000 and unrecorded Accounts Payable of$273,000. The corresponding balances on December 31, 2009 are $326,000 forAccounts Receivable and $473,000 for Accounts Payable.

3. Public Ltd. records Inventories at lower of cost and market. Private Inc.’s Inventories arecarried at cost. On December 31, 2009, the net realizable value of Private Inc.’s Inven-tories was $607,000.

4. On December 31, 2009, the appraised value of Private Inc.’s Land was $93,000.

5. The December 31, 2009 fair value of Private Inc.’s Plant And Equipment is $2,103,000.

6. The Patent on Private Inc.’s books was purchased on January 1, 2004 and is being amor-tized over what was expected to be its useful life, ten years. However, the process that iscovered by the Patent has been replaced by a less costly procedure, and is no longer usedby the Company. Private Inc. does not own any other intangible assets.

7. Private Inc.’s Bonds Payable were privately placed with a large insurance company. Atcurrent market rates of interest they have a present value of $790,000. However, theycan only be retired by paying the insurance company a premium of 10 percent over theirpar value.



Page 5

Required:

A. Provide the journal entries that would be required:

• on December 31, 2009 to record the acquisition,• on December 31, 2010 if the contingency payment is required,• on December 31, 2010 if the contingency payment is not required.

B. Prepare the December 31, 2009 Balance Sheet for the combined Companies Public Ltd.and its subsidiary, Private Inc.

Assignment Problem Three - 3 (Three Companies, Three Cases)As at December 31, 2009, the condensed Balance Sheets of Monson Ltd., Barrister Ltd., andFlex Ltd. are as follows:

Monson Ltd.Condensed Balance Sheet

At December 31, 2009

Book Values Fair Values

Current Assets $ 24,200 $ 25,000Non-Current Assets 186,500 193,200

Total Assets $210,700

Liabilities $ 78,400 $ 75,600No Par Common Stock (11,000 Shares) 93,500Retained Earnings 38,800

Total Equities $210,700

Barrister Ltd.Condensed Balance Sheet









Page 6

Flex Ltd.Condensed Balance Sheet







The three Companies intend to combine their activities and are considering a variety ofapproaches. Three possible approaches are as follows:

Approach One Flex Ltd. would borrow $303,000. Using the loan proceeds, FlexLtd. would pay cash of $160,000 to Monson Ltd. and cash of $143,000 to BarristerLtd., in return for all of the assets and liabilities of the two Companies. There will be awind up of the operations of both Monson Ltd. and Barrister Ltd.

Approach Two Barrister Ltd. would borrow $326,000. Using the loan proceeds,Barrister Ltd. would pay cash of $170,000 to the shareholders of Monson Ltd. andcash of $156,000 to the shareholders of Flex Ltd., in return for all of the outstandingshares of these two Companies.

Approach Three Monson Ltd. will issue 11,000 new common shares to BarristerLtd. and 11,000 new common shares to Flex Ltd. In return, Monson Ltd. will receiveall of the assets and liabilities of the two Companies. There would be a wind up of theactivities of the two Companies. At this time, the common stock of Monson Ltd. istrading at $13.50 per share. Neither Barrister Ltd. nor Flex Ltd. are given representa-tion on the Monson Ltd. board of directors.

Required: Prepare the December 31, 2009 Balance Sheet for the combined company thatwould result from each of the three approaches described. Your solutions should be preparedbased on the CICA Handbook Recommendations, without regard to any corporate legislationrequirements that may be applicable. The joining together of these three companies shouldbe viewed as a single business combination transaction.

Assignment Problem Three - 4 (Complex Business Combination)The Haggard Corporation Limited (Haggard, hereafter), a federally chartered Canadiancompany, has concluded negotiations with the Jones Corporation Limited (Jones, hereafter)for the purchase of all of the latter corporation’s assets at fair market value, effective January1, 2009. Jones Corporation Limited operates a restaurant and a catering business.

An examination at that date by independent experts disclosed that the fair market value ofJones’ inventories was $150,000, and of its machinery and equipment was $160,000. Theoriginal cost of the machinery and equipment was $140,000. It was determined that accountsreceivable were fairly valued at book value.

Jones held 1,000 of the common shares of Haggard and the fair market value of these shareswas $62,000. This value corresponds with the value of Haggard’s common shares in the openmarket and would be expected to hold for transactions involving a substantially larger numberof shares.

The purchase agreement provides that the total purchase price of all assets will be $490,000,payable as follows:



Page 7

1. Assumption of the current liabilities of Jones at their book value;

2. Settlement of the Jones debenture debt at its current value in a form acceptable toJones debenture holders;

3. Haggard shares held by Jones and acquired by Haggard as a result of the transactionwould be subsequently returned to Jones at fair market value as part of theconsideration;

4. Haggard holds 1,000 shares of Jones and these would be returned to Jones. The valueto be ascribed to these shares is 1/10 of the difference between the total purchaseprice of all assets stated above ($490,000), less the current value of its liabilities.

5. The balance of the purchase consideration was to be entirely in Haggard commonshares, except for a possible fractional share element which would be paid in cash.

The Jones debenture holders, who are neither shareholders of Haggard nor Jones, haveagreed to accept Haggard bonds in an amount equal to $88,626, the current market value ofthe bonds. The Haggard bonds carry a 12 percent coupon and trade at par. The face value ofeach bond is $1,000.

Any amounts assigned to goodwill in this business combination will be deductible for taxpurposes as cumulative eligible capital up to a maximum of 75 percent.

Jones, upon conclusion of the agreement, would be wound up. The Balance Sheets of bothcorporations, as at the date of implementation of the purchase agreement (January 1, 2009),are as follows:

Balance SheetsAs At January 1, 2009

Haggard Jones

Cash $ 100,000 NilAccounts Receivable 288,000 $112,000Inventories At Cost 250,000 124,000Investment In Jones (1,000 Shares) 20,000 N/AInvestment In Haggard (1,000 Shares) N/A 40,000Machinery And Equipment - Net 412,000 100,000

Total Assets $1,070,000 $376,000

Current Liabilities $ 60,000 $ 35,0007% Debentures - Due December 31, 2011 N/A 100,00012% Bonds - Due December 31, 2011 500,000 N/APremium On Bonds 20,000 N/ACommon Stock (See Note) 200,000 100,000Retained Earnings 290,000 141,000

Total Equities $1,070,000 $376,000

Note Each company has issued 10,000 shares.

Both corporations have fiscal years that are identical to the calendar year.

Required:

A. Prepare Haggard’s pro-forma Balance Sheet as at January 1, 2009.

B. Assume that Jones had a non-capital loss carry forward for tax purposes of $500,000.Should the form of the purchase of Jones differ? Explain your conclusion.

(CICA Adapted)



Page 8



Assignment Problem Four - 1(Consolidated Balance Sheet at Acquisition - NCI On Identifiable Assets)On December 31, 2009, the closed Trial Balances of the Pass Company and the SassCompany, before the business combination transaction, were as follows:

Pass Sass

Cash And Receivables $ 100,000 $ 110,000Inventories 3,300,000 190,000

Current Assets $3,400,000 $ 300,000Plant And Equipment (At Cost) 9,000,000 3,000,000Accumulated Amortization ( 3,400,000) ( 1,200,000)

Total Assets $9,000,000 $2,100,000

Current Liabilities $ 300,000 $ 200,000Long-Term Liabilities 3,500,000 800,000Mortgage Payable N/A 300,000

Total Liabilities $3,800,000 $1,300,000Shareholders’ Equity

Common Stock - No Par 1,000,000 N/ACommon Stock - Par $50 N/A 900,000Contributed Surplus N/A 300,000Retained Earnings (Deficit) 4,200,000 ( 400,000)

Total Equities $9,000,000 $2,100,000

The Pass Company has 25,000 shares outstanding on December 31, 2009 which are trading at$50 per share on this date. On December 31, 2009, the identifiable assets and liabilities ofboth companies had fair values that were equal to their carrying values except for thefollowing fair values:

Fair Values Pass Sass

Plant And Equipment (Net) $7,000,000 $1,500,000Long-Term Liabilities 3,000,000 900,000

It was also determined that on December 31, 2009, Sass Company had a registered trademarkwith a fair value of $120,000 that was not recorded on its books.

Prior to the business combination, in 2009, Pass sold merchandise to Sass for $200,000 andSass sold Pass merchandise for $100,000. On December 31, 2009, one-half of theseintercompany purchases had been resold to parties outside the consolidated entity. OnDecember 31, 2009, Sass owed Pass $50,000 on its intercompany merchandise purchases.

On December 31, 2009, Pass issued 15,000 of its shares to acquire 75 percent of theoutstanding shares of Sass.

Management has decided to record the Non-Controlling Interest at an amount equal to itsshare of the net identifiable assets of Sass.

Required: Prepare a classified consolidated Balance Sheet as at December 31, 2009 for thePass Company and its subsidiary, the Sass Company. Your answer should comply with all of therecommendations of Sections 1582, 1601, and 1602 of the CICA Handbook.



Page 9

Assignment Problem Four - 2(Consolidated Balance Sheet at Acquisition - NCI At Fair Value)The Peretti Company and the Blakelock Company are two successful Canadian companiesoperating on Prince Edward Island. On December 31, 2009, the condensed Balance Sheetsand the identifiable fair values of the Peretti Company and the Blakelock Company are asfollows:

Peretti CompanyDecember 31, 2009

Balance Sheet Fair Values

Current Assets $2,220,000 $2,340,000Non-Current Assets (Net) 3,600,000 3,900,000

Total Assets $5,820,000

Current Liabilities $ 420,000 $ 420,000Long-Term Liabilities 1,500,000 1,440,000Common Stock - No Par 1,800,000Retained Earnings 2,100,000

Total Equities $5,820,000

Blakelock CompanyDecember 31, 2009

Balance Sheet Fair Values

Current Assets $1,800,000 $1,980,000Non-Current Assets (Net) 3,540,000 2,400,000

Total Assets $5,340,000

Current Liabilities $ 720,000 $ 720,000Long-Term Liabilities 2,400,000 2,520,000Common Stock - No Par 1,200,000Retained Earnings 1,020,000

Total Equities $5,340,000

The Peretti Company has 300,000 common shares outstanding with a market price of $12 pershare. The Blakelock Company has 60,000 common shares outstanding with a market price of$23 per share. On December 31, 2009, Peretti owes Blakelock $48,000 for the use ofBlakelock’s accounting staff during 2009.

On December 31, 2009, subsequent to the preparation of the preceding single entity BalanceSheets, the Peretti Company purchases 60 percent of the outstanding shares of the BlakelockCompany for $900,000 in cash.

Peretti management has decided to record the Non-Controlling interest at its fair value. Thisvalue is determinated on the basis of the price paid for the controlling interest.

Required: Prepare a classified consolidated Balance Sheet for Peretti and its subsidiaryBlakelock, as at December 31, 2009.



Page 10



Assignment Problem Five - 1(Open Trial Balance - No Profits - NCI On Assets - Equity Method Calculations)On January 1, 2009, the Perry Company purchased 72 percent of the outstanding votingshares of the Styan Company for $3,975,000 in cash. On that date, the Styan Company hadNo Par Common Stock of $1,680,000 and Retained Earnings of $3,570,000. All of the StyanCompany’s identifiable assets and liabilities had carrying values that were equal to their fairvalues except for:

1. Inventories which had fair values of $1,806,000 and carrying values of$2,037,000.

2. Buildings which had fair values that were $175,000 more than their carryingvalues and a remaining useful life of 20 years.

3. Land which had a fair value of $1,596,000 and a carrying value of $1,400,000.

4. A Patent with a nil carrying value and a fair value of $154,000. The patent has aremaining life of two years.

5. Long-Term Liabilities which had fair values that were $210,000 more than theircarrying values and mature on December 31, 2018.

Perry records the at acquisition non-controlling interest in Styan based on this interest’s shareof the fair value of the identifiable net assets of Styan.

The Balance Sheets of the Perry Company and the Styan Company as at December 31, 2011were as follows:

Perry and Styan CompaniesBalance Sheets


Perry Styan

Cash $ 175,000 $ 17,500Current Receivables 910,000 140,000Inventories 1,709,750 1,050,000

Current Assets $ 2,794,750 $1,207,500Equipment (Net) 3,584,000 2,248,750Buildings (Net) 3,727,500 2,187,500Investment in Styan (Cost) 3,975,000 N/ALand 1,406,250 1,400,000

Total Assets $15,487,500 $7,043,750

Dividends Payable Nil $ 70,000Current Liabilities $ 840,000 350,000Long-Term Liabilities 3,587,500 3,064,000

Total Liabilities $4,427,500 $3,484,000Shareholders’ Equity:

Preferred Stock 280,000 NilNo Par Common Stock 9,100,000 1,680,000Retained Earnings 1,680,000 1,879,750

Total Equities $15,487,500 $7,043,750



Page 11

The Income Statements of the Perry and Styan Companies for the year ending December 31,2011 were as follows:

Perry and Styan CompaniesIncome Statements

For The Year Ending December 31, 2011

Perry Styan

Sales $3,800,000 $1,120,000Other Revenues 62,400 200,000

Total Revenues $3,862,400 $1,320,000

Cost of Goods Sold $1,412,000 $ 623,000Amortization Expense 525,000 175,000Other Expenses 1,567,000 235,000

Total Expenses $3,504,000 $1,033,000

Income Before Results OfDiscontinued Operations $ 358,400 $ 287,000

Results Of Discontinued Operations Nil ( 2,052,500)

Net Income (Loss) $ 358,400 ($1,765,500)

Other Information:

1. In both of the years since Perry acquired control over Styan, the goodwill arising on thisbusiness combination transaction has been tested for impairment. No impairment wasfound in either 2009 or 2010. However, due to the large loss for 2011, the goodwillrelated to the purchase of Styan shares has a nil fair value on December 31, 2011.

2. Both Companies use the straight line method to calculate amortization charges.

3. In its single entity records, Perry uses the cost method to carry its Investment In Styan.

4. The Sales account in both Companies’ Income Statements include only sales of merchan-dise. All other income is accounted for in Other Revenues.

5. The Styan Company has sold no Land since January 1, 2009.

6. During 2011, dividends of $175,000 were declared and paid by Perry and dividends of$70,000 were declared by Styan.

7. During 2011, Perry sold to Styan merchandise worth $217,000 which was resold by Styanfor a gross profit of $162,000 outside of the consolidated entity in 2011. Styan owes Perry$84,000 on December 31, 2011 due to these purchases.

8. During October, 2011, Styan charged the Perry Company $70,000 for the services of ateam of computer programmers. The wages paid to the programmers for this worktotalled $58,500. Perry still has a balance of $3,500 outstanding for this charge onDecember 31, 2011.

Required:

A. Prepare the consolidated Income Statement for the year ending December 31, 2011 ofthe Perry Company and its subsidiary, the Styan Company.

B. Prepare the consolidated Statement Of Retained Earnings for the year ending December31, 2011 of the Perry Company and its subsidiary, the Styan Company.



Page 12

C. Prepare the consolidated Balance Sheet as at December 31, 2011 of the Perry Companyand its subsidiary, the Styan Company.

D. Assume that the Perry Company, despite its majority ownership, does not have controlover Styan and carries its Investment In Styan using the equity method. Calculate anddisclose the amount(s) of investment income that would be shown in the Perry Company’sIncome Statement under this assumption. (An Income Statement is not required.)

Assignment Problem Five - 2(Open Trial Balance - No Profits - NCI At Fair Value - No Balance Sheet)On April 1, 2009, the Perle Company acquired 70 percent of the outstanding voting shares ofthe Thane Company for $1,785,000 in cash. On this date the book value of the ThaneCompany’s Shareholders’ Equity was $2,600,000 and all of the Thane Company’s identifi-able assets and liabilities had fair values that were equal to their carrying values except for thefollowing:

Carrying Value Fair Value

Marketable Securities $ 28,000 $ 35,000Fleet of Trucks 324,000 365,000Division F - Building and Equipment (Net) 631,000 453,000Land 96,000 118,000Long-Term Liabilities - Par $2,000,000 1,983,000 2,010,000

The management of Perle intends to measure the non-controlling interest in Thane at its fairvalue, determined on the basis of the price paid for the controlling Interest.

The Marketable Securities were sold on March 17, 2010 for $33,000. The fleet of trucks havean estimated remaining useful life of four years on April 1, 2009 and no anticipated salvagevalue. The Division F Building and Equipment was purchased on April 1, 1997 and had anestimated useful life of 20 years on that date. When purchased they had an anticipatedsalvage value of $80,000 and there is no change in the estimates of salvage value or totaluseful life on April 1, 2009. The parcel of Land is being held in anticipation of expansion in2015. The Long-Term Liabilities are scheduled to mature on April 1, 2015.

Both Companies use the straight line method for amortization calculations. The PerleCompany carries its investment in Thane Company using the cost method. This is applied on apro rata basis to assets that are owned for less than a full year.

For the year ending December 31, 2011, the Income Statements for the Perle Company andthe Thane Company are as follows:

Perle and Thane CompaniesIncome Statements


Perle Thane

Sales Revenue $4,887,000 $1,450,000Investment Income 29,500 12,000

Total Revenues $4,916,500 $1,462,000

Cost Of Goods Sold $2,117,000 $ 829,000Amortization Expense 935,000 135,000Other Expenses and Losses 1,284,000 246,000

Total Expenses $4,336,000 $1,210,000

Net Income $ 580,500 $ 252,000



Page 13

Other Information:

1. On January 1, 2011, the Retained Earnings balance of the Perle Company was$8,463,000. During 2011, the Perle Company paid dividends totalling $115,000.

2. Between April 1, 2009 and December 31, 2010, Thane earned Net Income of $192,000and declared dividends totalling $46,000.

3. During the period April 1, 2009 until December 31, 2011, neither the Perle Company northe Thane Company issue or retire shares of common stock.

4. In each of the years since Perle acquired control over Thane, the goodwill arising on thisbusiness combination transaction has been tested for impairment. No impairment wasfound in any of the years since acquisition.

5. The Perle Company’s investment income for 2011 consists of $5,000 in interest revenueand its income from the Thane Company.

6. During 2011, the Thane Company used the services of several of the Perle Company’saccountants and agreed to pay a fee of $5,600 for these services. On December 31, 2011,this fee remains unpaid. This amount is included in the Sales Revenues of the PerleCompany and in the Other Expenses of the Thane Company. The salaries paid to theaccountants by the Perle Company for the work done on the Thane Company amount to$4,200 and are included in the Other Expenses of the Perle Company.

7. On January 1, 2011, the Perle Company rented a building from the Thane Company for amonthly rent of $2,000. On December 31, 2011, the Perle Company owed three monthsrent. The rent is included in the Sales Revenues of the Thane Company and in the OtherExpenses of the Perle Company.

Required:

A. For the year ending December 31, 2011, prepare the consolidated Income Statement andthe consolidated Statement Of Retained Earnings of the Perle Company and its subsid-iary, the Thane Company. Include a verification of the December 31, 2011 consolidatedRetained Earnings balance.

B. Calculate the Non-Controlling Interest that would be shown in the December 31, 2011consolidated Balance Sheet of the Perle Company and its subsidiary, the ThaneCompany.

C. Assume that on December 31, 2011, the Thane Company sold the Division F assets tosomeone outside the consolidated entity for $380,000, creating a loss of $61,594 onThane Company’s books. Assume that this loss is included in Thane’s Other Expenses AndLosses. The sale consisted of the Building and Equipment which had the fair value changeon April 1, 2009. Provide the journal entries to record the effect of the loss on the consoli-dated Income Statement of the Perle Company and its subsidiary, the Thane Company forthe year ending December 31, 2011.



Page 14

Assignment Problem Five - 3 (Consolidated Cash Flow Statement - No Profits)

The ledger account balances for the Pump Company and the Slump Company on December31, 2009 and 2010 are as follows:

December 31, 2010 December 31, 2009

Pump Slump Pump Slump

Cash $ 42,200 $ 69,400 $ 113,400 $ 19,600Accounts Receivable 99,400 128,400 108,400 63,000Other Current Receivables 82,600 44,800 64,600 49,000Inventories 93,200 128,800 99,600 96,800Investment in Slump (Cost) 356,800 N/A 356,800 N/AOther Investments (Cost) 21,600 66,800 185,600 66,800Land 36,400 30,000 57,400 30,000Buildings 271,600 174,000 213,400 130,000Equipment 122,000 90,000 96,000 90,000Dividends Declared 48,000 28,000 Nil Nil

Total Debits $1,173,800 $760,200 $1,295,200 $545,200

Bad Debt Allowance $ 9,000 $ 7,800 $ 8,200 $ 7,400Accumulated Amortization 139,000 101,200 82,600 62,400Accounts Payable 45,800 91,800 62,400 73,600Notes Payable 82,000 50,000 176,800 NilDividends Payable Nil 28,000 Nil NilOther Accruals 11,800 41,600 25,400 25,200Taxes Payable 39,200 38,800 73,000 24,600Bonds Payable Nil Nil 60,000 NilCommon Stock - No Par 584,000 226,400 584,000 226,400Opening Retained Earnings 222,800 125,600 124,600 77,400Net Income 40,200 49,000 98,200 48,200

Total Credits $1,173,800 $760,200 $1,295,200 $545,200

Other Information:

1. On January 2, 2009, the Pump Company acquired from the shareholders of the SlumpCompany, 90 percent of the Slump Company’s outstanding voting shares for the followingconsideration:

500 Shares of Pump Common Stock - No Par $200,000Note Payable To Slump Shareholders - Due June 30, 2012 156,800

Total Consideration $356,800

On that date, the Slump Company’s identifiable assets and liabilities had carrying valuesthat were equal to their fair values. The excess of the purchase price over Pump’s share ofthese values has been allocated to Goodwill. There was no impairment of this Goodwill ineither 2009 or 2010.

Pump elects to record the non-controlling interest in Sump on the basis of the fair value ofthat Company’s identifiable net assets.

The Note Payable was unexpectedly paid in advance on June 30, 2010. All other NotesPayable present on the books of Pump and Sump are classified as current.



Page 15

2. On January 1, 2010, Pump sold Other Investments for proceeds of $202,600. Theseinvestments had been carried at a cost of $170,800. Pump also sold Land which had cost$21,000, for proceeds of $37,600.

3. On June 30, 2010, Pump demolished an unneeded Building which had cost $37,800 andhad a net book value of $10,800.

4. During 2010, Pump declared and paid cash dividends of $48,000. On December 1,2010, Slump declared a $28,000 cash dividend. This dividend was payable on January15, 2011, to holders of record on December 20, 2010. Pump has recorded the dividendsin Other Current Receivables. Slump declared no other dividends during 2010.

5. The Pump Company’s Bonds Payable were retired in 2010. Cash of $65,000 was paidwhich included $60,000 in par value, $1,200 in accrued interest and a $3,800 penalty forearly retirement.

6. On December 31, 2010, Pump Company’s Other Current Receivables include a $50,000non-interest bearing Note Payable by Slump. Slump Company’s December 31, 2010Accounts Receivable includes $37,000 due from Pump for merchandise purchases.Slump had sold the merchandise to Pump for an amount equal to the cost of the merchan-dise to Slump. There are no intercompany receivables or payables on December 31,2009.

Required: Prepare a consolidated Cash Flow Statement for the Pump Company and itssubsidiary, the Slump Company for the year ending December 31, 2010.

Assignment Problem Five - 4 (Step Acquisition - No Profits)The carrying value and fair value of the identifiable net assets of the Slice Company are asfollows:

Carrying Value Fair Value

December 31, 2009 $4,265,000 $4,365,000December 31, 2010 $4,865,000 $5,065,000

On December 31, 2009, the Piece Company acquires 20 percent of the 100,000 outstandingvoting shares of the Slice Company for cash of $904,000 ($45.20 per share). The remaininguseful life of the Slice Company assets on which the fair value changes exist is 10 years and nosalvage value is anticipated. As this investment gives Piece significant influence over Slice, itwill be accounted for using the equity method.

During 2010, Slice Company has Net Income of $120,000 and declares dividends of$80,000.

On December 31, 2010, the Piece Company acquires an additional 50 percent of the100,000 outstanding voting shares of the Slice Company for cash of $2,873,000 ($57.46 pershare). The remaining life of the Slice Company assets on which the fair value changes exist isis now 9 years.

As Piece now has control of the operations of Slice, consolidated financial statements will beprepared. Piece intends to record the non-controlling interest in Slice on the basis of the fairvalue of Slice’s identifiable net assets.

Both companies have a December 31 year end and use the straight-line method for amor-tizing assets.



Page 16

Required:

A. Provide the 2010 journal entries required to account for Piece’s investment in Slice usingthe equity method. In addition, provide the journal entry to record any gain or loss on thisinvestment that will result from Piece acquiring control of Slice on December 31, 2010.

B. Determine the goodwill that will be recognized in the December 31, 2010 consolidatedBalance Sheet that will be prepared for Piece and its subsidiary Slice.



Page 17



Assignment Problem Six - 1 (Open Trial Balance - Profits - NCI At Fair Value)On December 31, 2009, the Pumpkin Company purchased 75 percent of the outstandingvoting shares of the Squash Company for $4,200,000 in cash. On that date, the SquashCompany had No Par Common Stock of $3,900,000 and Retained Earnings of $600,000. Allof the Squash Company’s identifiable assets and liabilities had carrying values that were equalto their fair values except for:

1. Inventories with fair values that were $60,000 more than their carrying values.

2. Land which had a fair value that was $300,000 greater than its carrying value.

3. Equipment which had a fair value of $270,000 more that its carrying value. Itsremaining useful life is 15 years with no expected salvage value.

4. Long-Term Liabilities which had fair values that were $90,000 more than theircarrying values and mature on December 31, 2015.

Pumpkin’s management elects to record the acquisition date non-controlling interest at itsfair value, measured on the basis of the price paid for the controlling interest.

The Balance Sheets of the Pumpkin Company and the Squash Company as at December 31,2013 were as follows:

Pumpkin and Squash CompaniesBalance Sheets


Pumpkin Squash

Cash and Current Receivables $ 1,620,000 $ 930,000Inventories 1,800,000 660,000

Current Assets $ 3,420,000 $1,590,000Long-Term Receivables 840,000 300,000Plant and Equipment (Net) 4,500,000 2,700,000Investment in Squash (Cost) 4,200,000 N/ALand 2,400,000 1,200,000

Total Assets $15,360,000 $5,790,000

Current Liabilities $ 480,000 $ 240,000Long-Term Liabilities 660,000 390,000

Total Liabilities $ 1,140,000 $ 630,000Shareholders’ Equity

No Par Common Stock 10,200,000 3,900,000Retained Earnings 4,020,000 1,260,000

Total Equities $15,360,000 $5,790,000

The Income Statements of the Pumpkin and Squash Companies for the year ending December31, 2013 were as follows:



Page 18

Pumpkin and Squash CompaniesIncome Statements


Pumpkin Squash

Sales $5,610,000 $1,770,000Interest Revenue 84,000 30,000Other Revenues 90,000 Nil

Total Revenues $5,784,000 $1,800,000

Cost of Goods Sold $3,900,000 $1,260,000Interest Expense 66,000 45,000Other Expenses 690,000 240,000

Total Expenses $4,656,000 $1,545,000

Net Income $1,128,000 $ 255,000

Other Information:

1. In each of the years since Pumpkin acquired control over Squash, the goodwill arising onthis business combination transaction has been tested for impairment. In 2011, a Good-will Impairment Loss of $84,000 was recognized. No impairment was found in any of theother years since acquisition.

2. Both Companies use the straight line method to calculate amortization charges.

3. Pumpkin uses the cost method to carry its Investment in Squash.

4. During 2013, dividends of $360,000 were declared and paid by Pumpkin and dividendsof $120,000 were declared and paid by Squash.

5. The Pumpkin Company manufactures machines with a five year life. Its Sales total in theIncome Statement includes only sales of these machines. Intercompany sales of thesemachines are priced to provide Pumpkin with a 20 percent gross profit on sales prices inall the years under consideration. On December 31, 2011, Pumpkin sold machines it hadmanufactured to Squash for $150,000. Squash uses the machines in its productionprocess. On January 1, 2013, Pumpkin sold an additional $300,000 of these machines tothe Squash Company. There were no other intercompany sales of these machines in anyof the years under consideration.

6. The Squash Company manufactures paper products used in offices. During 2012, Squashsold to Pumpkin $18,000 worth of office supplies of which all but $3,000 were used byPumpkin in 2012. During 2013, Pumpkin purchased $15,000 worth of merchandise fromSquash. During 2013, the Pumpkin Company used $9,000 worth of these paper productspurchased from Squash. Squash’s intercompany sales are priced to provide it with a 50percent gross margin on its sales price.

7. On January 1, 2011, Squash sold a piece of equipment to Pumpkin for 20 percent morethan its carrying value of $300,000. At this time, the equipment has an estimatedremaining useful life of eight years, with no anticipated salvage value.

8. During 2012, Squash sold land that had a carrying value of $240,000 to Pumpkin for aprofit of $30,000. One-half of the proceeds was paid at that date and the remainder isdue on July 1, 2014. The Land that had the fair value increase of $300,000 on December31, 2009 is still on the books of Squash.

9. On December 31, 2013, Squash had current receivables of $6,000 from Pumpkin andPumpkin is owed $18,000 by Squash. Intercompany interest which was paid during 2013on outstanding intercompany payables totalled $1,000 for Squash and $1,400 forPumpkin.



Page 19

Required:

A. Prepare the consolidated Income Statement for the year ending December 31, 2013 ofthe Pumpkin Company and its subsidiary, the Squash Company.

B. Prepare the consolidated Statement of Retained Earnings for the year ending December31, 2013, of the Pumpkin Company and its subsidiary, the Squash Company.

C. Prepare the consolidated Balance Sheet as at December 31, 2013 of the PumpkinCompany and its subsidiary, the Squash Company.

Assignment Problem Six - 2(Income Statement And Balance Sheet Items - NC On Assets)On January 1, 2009, the Paul Company acquired 75 percent of the outstanding voting sharesof the Saul Company for $6,000,000 in cash. On this date the Saul Company had No ParCommon Stock of $6,200,000 and Retained Earnings of $2,800,000.

At this acquisition date, the Saul Company had Plant And Equipment that had a fair value thatwas $600,000 less than its carrying value, Long-Term Liabilities that had a fair value that was$200,000 more than their carrying values and Inventories with a fair value that was less thantheir carrying values in the amount of $800,000. The remaining useful life of the Plant AndEquipment was 12 years with no anticipated salvage value. The Long-Term Liabilities wereissued at par of $4,000,000 and mature on January 1, 2019.

All of the other identifiable assets and liabilities of the Saul Company had fair values that wereequal to their carrying values on the date of acquisition.

The management of Paul elects to measure the acquisition date non-controlling interest inSaul on the basis of the fair value of the Company’s identifiable net assets.

On January 1, 2012, the Saul Company sells a broadcast licence to the Paul Company for$900,000. On this date the carrying value of this broadcast licence on the books of the SaulCompany was $1,000,000 and the remaining useful life was five years. Amortization is calcu-lated on a straight line basis by both companies.

Between January 1, 2009 and January 1, 2014, the Saul Company had Net Income of$2,200,000 and paid dividends of $800,000. On January 1, 2014, the Retained Earnings ofthe Paul Company were $30,000,000. During 2014, the Paul Company declared and paiddividends of $200,000 and the Saul Company declared and paid dividends of $100,000. ThePaul Company carries its Investment in Saul by the cost method.

The condensed Income Statements of the two Companies for the year ending December 31,2014 are as follows:

Paul and Saul CompaniesIncome Statements


Paul Saul

Total Revenues $5,000,000 $2,000,000

Cost Of Goods Sold $3,000,000 $1,200,000Other Expenses 1,500,000 600,000

Total Expenses $4,500,000 $1,800,000

Net Income $ 500,000 $ 200,000



Page 20

During 2014, 40 percent of the Saul Company’s Revenues resulted from sales to the PaulCompany. Half of this merchandise remains in the ending inventories of the Paul Companyand has not yet been paid for. The December 31, 2014 inventory balances for the Paul andSaul Companies are $950,000 and $380,000 respectively.

On January 1, 2014, the inventories of the Paul Company contained purchases from the SaulCompany of $500,000. All intercompany merchandise transactions are priced to provideSaul with a gross margin on sales prices of 40 percent.

The Saul Company has not issued any additional Common Stock or Long-Term Liabilities sincethe date of its acquisition by the Paul Company. On December 31, 2014, the Paul Companyhad $15,000,000 in Long-Term Liabilities.

In each of the years since Paul purchased the shares of Saul, the goodwill arising from thisshare purchase has been tested for impairment. No impairment was found in any of the yearssince acquisition.

Required:

A. Prepare the consolidated Income Statement for the year ending December 31, 2014 forthe Paul Company and its subsidiary, the Saul Company.

B. Calculate the amounts, showing all computations, that would be included in the consoli-dated Balance Sheet as at December 31, 2014 of the Paul Company and its subsidiary, theSaul Company for the following accounts:

1. Retained Earnings2. Non-Controlling Interest3. Inventories4. Broadcast Licence5. Long-Term Liabilities6. Goodwill

Assignment Problem Six - 3 (Consolidated Cash Flow Statement - Profits)The Norwood Company purchased 75 percent of the outstanding voting shares of the SollipCompany on January 1, 2009 for $2,000,000 in cash. On the acquisition date, Sollip hadRetained Earnings of $1,400,000 and Common Stock of $600,000.

At this time, the Sollip Company’s identifiable assets and liabilities had fair values that wereequal to their carrying values except for:

• Plant And Equipment, which had a fair value that was $40,000 more than carryingvalue. This Plant And Equipment had a remaining life of 10 years with no anticipatedsalvage value.

• Long-Term Liabilities with a fair value that was $80,000 less than carrying value.These Long-Term Liabilities mature on January 1, 2019.

The management of Norwood elects to record the acquisition date non-controlling interest inSollip at its fair value. This fair value will be measured on the basis of the price paid for thecontrolling interest.

The Norwood Company carries its Investment In Sollip by the cost method. Both Companiesuse the straight line method to calculate amortization.

The comparative Balance Sheets and the condensed Statement of Income And Change InRetained Earnings for the year ending December 31, 2012 of the Norwood Company and itssubsidiary, the Sollip Company are as follows:



Page 21

Balance SheetsAs At December 31

Norwood Sollip

2012 2011 2012 2011

Cash $1,009,988 $ 360,000 $1,200,000 $ 600,000Accounts Receivable 1,394,000 64,000 780,000 200,000Inventories 310,000 170,000 480,000 320,000Investment In Sollip (At Cost) 2,000,000 2,000,000 N/A N/APlant And Equipment 6,240,000 6,000,000 4,000,000 4,000,000Accumulated Amortization ( 3,045,667) ( 2,800,000) ( 1,988,000) ( 1,600,000)Land 120,000 120,000 60,000 Nil

Total Assets $8,028,321 $5,914,000 $4,532,000 $3,520,000

Current Liabilities $2,468,321 $ 714,000 $1,452,000 $ 760,000Long-Term Liabilities 900,000 800,000 560,000 360,000Common Stock - No Par 2,020,000 2,000,000 600,000 600,000Retained Earnings 2,640,000 2,400,000 1,920,000 1,800,000

Total Equities $8,028,321 $5,914,000 $4,532,000 $3,520,000

Statements Of Income And Retained EarningsYear Ending December 31, 2012

Norwood Sollip

Total Revenues $2,760,000 $2,000,000

Cost Of Goods Sold $1,200,000 $ 790,000Amortization Expense 410,667 548,000Other Expenses And Losses 849,333 342,000

Total Expenses And Losses $2,460,000 $1,680,000

Net Income $ 300,000 $ 320,000Retained Earnings, January 1 2,400,000 1,800,000

Balance Available $2,700,000 $2,120,000Dividends ( 60,000) ( 200,000)

Balance, December 31 $2,640,000 $1,920,000

Other Information:

1. On January 1, 2010, the Sollip Company sold furniture to the Norwood Company for$31,000. The furniture had a net book value of $85,000 and an estimated useful life onthis date of four years with no anticipated salvage value.

2. On December 31, 2011, the Norwood Company had in its Inventories $35,000 ofmerchandise that it had purchased from Sollip during 2011. During 2012, Norwoodpurchased $200,000 of merchandise from Sollip, of which $75,000 remain in theDecember 31, 2012 Inventories of Norwood. The Norwood Company sold $120,000 ofmerchandise to Sollip during 2012, which was resold during the year for $165,000.Intercompany inventory sales are priced to provide the selling company with a 30 percentgross profit on sales price.

3. On December 31, 2012, due to the intercompany inventory sales, the NorwoodCompany owed the Sollip Company $60,000 and the Sollip Company owed the NorwoodCompany $80,000. There were no intercompany accounts payable balances onDecember 31, 2011.



Page 22

4. On January 1, 2012, to raise cash, the Norwood Company took out a $100,000 secondmortgage on its assets. In addition, it sold office equipment that had cost $195,000 andhad accumulated amortization of $165,000 for $20,000.

5. On December 31, 2012, the Sollip Company sold a machine to the Norwood Companyfor $55,000. The machine had been purchased on January 1, 2009 for $200,000 and hadan expected life at that date of 5 years with no anticipated salvage value. The SollipCompany had taken amortization for 2012 on the machine before the sale. The only PlantAnd Equipment acquisition of the Sollip Company was a $200,000 machine to replace theone sold to Norwood.

6. On June 30, 2012, the Norwood Company also purchased other Equipment for a combi-nation of $360,000 in cash and 4,000 No Par Common Shares. The stock was trading at$5 per share on this date.

7. On April 1, 2012, the Sollip Company issued 20 year, 14 percent bonds for $200,000 andused part of the proceeds to purchase a parcel of land.

8. In the year of acquisition of Sollip, a Goodwill Impairment Loss of $200,000 was recog-nized due to an unfavourable ruling in a court case. No impairment was found in any ofthe other years since acquisition.

Required: (Note that in Parts A, B and C, financial statements are not required.)

A. Compute Consolidated Net Income Of The Enterprise for the year ending December 31,2012 for the Norwood Company and its subsidiary, the Sollip Company.

B. Calculate consolidated Retained Earnings as at December 31, 2012 for the NorwoodCompany and its subsidiary, the Sollip Company.

C. Compute the Non-Controlling Interest that would be disclosed on the consolidatedBalance Sheet of the Norwood Company and its subsidiary, the Sollip Company as atDecember 31, 2012.

D. Prepare the consolidated Cash Flow Statement for the year ending December 31, 2012for the Norwood Company and its subsidiary, the Sollip Company.

Assignment Problem Six - 4(Completed Consolidated Statements With Questions)The single entity and consolidated Balance Sheets and Income Statements for the PompCompany and its subsidiary, the Sircumstance Company, for the year ending December 31,2013, are as follows:



Page 23

Balance SheetsAs At December 31, 2013

Pomp Sircumstance Consolidated

Cash $ 20,000 $ 15,000 $ 35,000Accounts Receivable 400,000 250,000 520,000Inventories 380,000 335,000 635,000

Current Assets $ 800,000 $ 600,000 $1,190,000Investment In Sircumstance 1,500,000 N/A NilLand 800,000 1,200,000 2,125,000Plant And Equipment (Net) 3,000,000 2,300,000 5,500,000Goodwill Nil Nil 190,000

Total Assets $6,100,000 $4,100,000 $9,005,000

Current Liabilities $ 200,000 $ 100,000 $ 190,000Dividends Payable 50,000 25,000 55,000Bonds Payable 2,000,000 1,475,000 3,475,000

Total Liabilities $2,250,000 $1,600,000 $3,720,000Shareholders’ Equity

Non-Controlling Interest Nil Nil 549,000Common Stock (No Par) 3,000,000 1,000,000 3,000,000Retained Earnings 850,000 1,500,000 1,736,000

Total Equities $6,100,000 $4,100,000 $9,005,000

Income StatementsFor The Year Ending December 31, 2013

Pomp Sircumstance Consolidated

Sales $3,200,000 $2,500,000 $5,400,000Cost Of Goods Sold ( 2,000,000) ( 1,000,000) ( 2,720,000)Other Expenses ( 800,000) ( 1,400,000) ( 2,300,000)Goodwill Impairment Loss Nil Nil ( 10,000)Investment Income 40,000 Nil Nil

Net Income (Single Entities) $ 440,000 $ 100,000 N/AConsolidated Net Income

Of The Enterprise $ 370,000Non-Controlling Interest (Loss) 4,000

Controlling Interest In The NetIncome Of The Enterprise $ 374,000

Dividends Declared ( 200,000) ( 50,000) ( 200,000)

Increase In Retained Earnings $ 240,000 $ 50,000 $ 174,000

Other Information:

1. Pomp Company acquired 80 percent of the Common Stock of the Sircumstance Companyon January 1, 2009. At that time, all of the identifiable assets and liabilities of theSircumstance Company had fair values that were equal to their carrying values except forLand which had a fair value that was $125,000 in excess of its carrying value. The Land isstill on the books of the Sircumstance Company on December 31, 2013. Pomp elects torecord the at acquisition non-controlling interest in Sircumstance on the basis of its shareof the fair value of the identifiable net assets of the subsidiary.



Page 24

2. In each of the years since Pomp acquired control over Sircumstance, the goodwill arisingon this business combination transaction has been tested for impairment. No impairmentwas found in any year prior to 2013.

3. Both Companies calculate amortization using the straight line method.

4. The Sircumstance Company regularly sells merchandise to the Pomp Company and, afterfurther processing, the merchandise is resold by the Pomp Company.

5. On January 1, 2011, the Sircumstance Company sold equipment to the Pomp Company ata loss. At the time, the remaining useful life of this equipment was five years.

6. Since the Pomp Company acquired its investment in the Sircumstance Company, therehas been no change in the number of Sircumstance Company common sharesoutstanding.

Required: On the basis of the information you can develop from an analysis of the precedingindividual and consolidated financial statements, provide answers to the following questions.

A. Does the Pomp Company carry its investment in the Common Stock of the SircumstanceCompany by the cost method or the equity method? Explain the basis for your conclusion.

B. Assume that $1,500,000 was the cost of the Pomp Company’s investment in the CommonStock of the Sircumstance Company. What was the balance in the Retained Earningsaccount of the Sircumstance Company on January 1, 2009?

C. What is the amount of intercompany inventory sales that the Sircumstance Companymade to the Pomp Company during 2013?

D. What is the explanation for the difference between the consolidated Cost Of Goods Soldand the combined Cost Of Goods Sold of the two affiliated Companies? Your answershould include the computation of any intercompany profit in the opening inventories ofthe Pomp Company and the computation of any intercompany profit in the closing inven-tories of the Pomp Company. The amount of intercompany sales previously calculatedshould also be used in this computation.

E. On January 1, 2011, what was the amount of unrealized loss on the intercompany sale ofPlant And Equipment by Sircumstance Company to the Pomp Company?

F. Prepare a schedule of intercompany debts and, if possible, indicate which Company is thecreditor and which is the debtor.

G. Verify the Non-Controlling Interest in the Consolidated Net Income Of The Enterprise forthe year ending December 31, 2013.

H. Using the information given and your answers calculated in the preceding parts of thisquestion, verify the controlling interest in the Consolidated Net Income Of The Enterprisefor the year ending December 31, 2013.

I. Verify the Non-Controlling Interest in the consolidated Balance Sheet as at December 31,2013.

J. Using the information given and your answers calculated in the preceding parts of thisquestion, verify the consolidated Retained Earnings figure as at December 31, 2013.



Page 25


There are no Assignment Problems for Chapter 7.



Page 26



Assignment Problem Eight - 1 (Capital Contributions To Joint Ventures)Both of the following Cases involve two companies which deal with each other at arm’s length.The two companies are Boom Boom Ltd. (BBL) and Yum Yum Inc. (YYI). Boom Boom Ltd. isinvolved in processing popcorn products, while Yum Yum Inc. manufactures luxury ice creamproducts. They have decided to form a new company, Paradise Ventures Ltd. (PVL), in orderto do research on the use of popcorn in ice cream products. The new company will be subjectto a management agreement which gives BBL and YYI joint control of the investing, financing,and operating activities of the company.

The two Cases which follow describe the capital contributions made by BBL and YYI in theorganization of PVL. They are independent of each other.

Case One BBL contributes cash of $1,500,000, one item of manufacturing equip-ment with a fair value of $560,000 and a carrying value of $450,000, and a seconditem of manufacturing equipment with a fair value of $740,000 and a carrying valueof $860,000. The transfer of the second item of equipment to PVL is considered to beevidence of a non-temporary decline in the value of the equipment. In return forthese capital contributions, BBL receives a 56 percent equity interest in PVL. YYIcontributes $2,200,000 in cash in return for a 44 percent equity interest in PVL.

Case Two BBL contributes a manufacturing plant with a fair value of $1,840,000and a carrying value of $1,320,000. In return for this plant, BBL receives cash of$1,000,000 and a 42 percent equity interest in PVL. BBL is not obligated to reinvestthe cash. YYI contributes $600,000 in cash and other assets with a fair value of$560,000 and a carrying value of $423,000. In return for this capital contribution,YYI receives a 58 percent equity interest in PVL. PVL borrows $2,300,000 from theRoyal Bank.

Required: For both of the preceding independent Cases, assume that in BBL’s single entityfinancial statements, the Investment In PVL will be accounted for by the equity method andthat, in determining the gain or loss on the transfer of the manufacturing plant to PVL, BBL willfollow the Recommendations contained in Section 3055 of the CICA Handbook.

For each Case:

A. Determine the total gain or loss to be recognized by BBL on its transfer of the manufac-turing plant and equipment to PVL. In addition, indicate the amount of this gain or lossthat can be taken into income at the time of transfer.

B. Determine the value to be recorded in BBL’s single entity financial statements as theinitial Investment In PVL.

C. Provide the journal entry that would be used by BBL to record the investment transaction.



Page 27

Assignment Problem Eight - 2(Proportionate Consolidation - No Intercompany Profits)On January 1, 2009, Saytor Ltd. acquires 35 percent of the outstanding common shares ofSaytee Inc. at a cost of $3,066,000. On this date, the Shareholders’ Equity of Saytee Inc. wasas follows:

Common Stock - No Par $4,500,000Retained Earnings 3,700,000

Total Shareholders’ Equity $8,200,000

At this time, all of the identifiable assets and liabilities of Saytee Inc. have fair values that areequal to their carrying values. This means that the $196,000 excess of the purchase price($3,066,000) over Saytor’s 35 percent share of Saytee’s book value ($2,870,000) will be allo-cated to Goodwill. There was no impariment of this Goodwill balance during the year endingDecember 31, 2009.

The remaining 65 percent of the shares of Saytee are owned by Paytor Ltd. Saytor has no affili-ation with Paytor other than their common ownership of Saytee. Saytor and Paytor sign anagreement which provides for joint control over Saytee. All significant operating andfinancing decisions must be approved by both of the investor companies.

During the year ending December 31, 2009, Saytee Inc. has Net Income of $462,000 anddeclares and pays dividends of $250,000. For 2009, Saytee does not report any results ofdiscontinued operations, extraordinary items or capital transactions. Other than Saytee’sDividends Declared, there are no transactions between the two Companies during the year.Saytor Ltd. carries its Investment In Saytee using the equity method. Both Companies have aDecember 31 year end.

The Balance Sheets for the two companies as at December 31, 2009 and the Income State-ments for the year ending December 31, 2009, are as follows:

Saytor And Saytee CompaniesBalance Sheets


Saytor Ltd. Saytee Inc.

Cash $ 420,000 $ 270,000Accounts Receivable 1,340,000 896,000Inventories 2,370,000 3,560,000Investment In Saytee (Note) 3,140,200 N/APlant And Equipment (Net) 3,170,000 5,708,000

Total Assets $10,440,200 $10,434,000

Current Liabilities $ 872,000 $ 462,000Long-Term Liabilities 2,100,000 1,560,000Common Stock - No Par 3,700,000 4,500,000Retained Earnings 3,768,200 3,912,000

Total Equities $10,440,200 $10,434,000

Note The equity value for the Investment In Saytee would be calculated as follows:

Cost On January 1, 2009 $3,066,000Equity Pickup For 2009 [35%)($462,000 - $250,000)] 74,200

Investment At Equity $3,140,200



Page 28

Saytor And Saytee CompaniesIncome Statements

Year Ending December 31, 2009

Saytor Ltd. Saytee Inc.

Sales $12,572,300 $8,623,000Investment Income [(35%)($462,000)] 161,700 Nil

Total Revenues $12,734,000 $8,623,000

Cost Of Sales $ 7,926,000 $5,824,000Amortization Expense 3,116,000 1,326,000Other Expenses 1,132,000 1,011,000

Total Expenses $12,174,000 $8,161,000

Net Income $ 560,000 $ 462,000

Required: Using proportionate consolidation procedures, prepare the consolidated BalanceSheet as at December 31, 2009 and the consolidated Income Statement for the year endingDecember 31, 2009 for Saytor Ltd. and its investee, Saytee Inc.

Assignment Problem Eight - 3(Proportionate Consolidation - Intercompany Profits)On January 1, 2009, Sparkling Ltd. (SL) and Raindrop Inc. (RI) formed a new corporation tomarket water fountains to be sold to local shopping malls. This new corporation will be calledFountain Venture Inc. (FVI). SL and RI have no affiliation with each other except for their jointownership in FVI. SL and RI signed an agreement which provides for joint control over FVI.All significant operating and financing decisions must be approved by both of the investorcompanies.

SL’s capital contribution is a warehouse with a carrying value of $600,000 and a fair value of$2,000,000. The building is located on leased land, with lease payments that are at currentmarket values. On January 1, 2009, there are 10 years remaining on the lease. This is also theremaining economic life of the building. The lease is transferred to FVI at the time of incorpo-ration. SL receives 48 percent of FVI’s voting shares and $500,000 in cash. A gain of$1,400,000 is recorded by SL on the transfer of the building.

RI’s capital contribution is $1,625,000 in cash. In return, RI receives 52 percent of FVI’svoting shares.

For the year ending December 31, 2009, the single entity Income Statements and BalanceSheets for SL and FVI are as follows:

Income StatementsFor The Year Ending December 31, 2009

SL FVI

Sales $5,600,000 $3,600,000Gain On Sale Of Building 1,400,000 Nil

Total Revenues $7,000,000 $3,600,000

Cost Of Goods Sold 3,500,000 2,380,000Amortization Expense 340,000 200,000Other Expenses 540,000 230,000

Total Expenses $4,380,000 $2,810,000

Net Income $2,620,000 $ 790,000



Page 29


SL FVI

Cash And Receivables $ 2,600,000 $ 670,000Inventories 5,480,000 1,850,000Investment in FVI (At Cost) 1,500,000 N/ALand 990,000 NilBuilding 3,400,000 2,000,000Accumulated Amortization ( 1,010,000) ( 200,000)

Total Assets $12,960,000 $ 4,320,000

Liabilities $ 850,000 $ 405,000Common Stock - No Par 7,680,000 3,125,000Retained Earnings 4,430,000 790,000

Total Equities $12,960,000 $ 4,320,000

Other Information:

1. During the year ending December 31, 2009, FVI sells merchandise to SL for $400,000.This merchandise had cost FVI $300,000 and 50 percent of it has been resold by SL.

2. During the year ending December 31, 2009, SL sells merchandise to FVI for $1,500,000.This merchandise had cost $1,380,000 and none of it has been resold by FVI.

3. Neither SL nor FVI declare or pay dividends during the year ending December 31, 2009.

Required: Using proportionate consolidation procedures, prepare a consolidated BalanceSheet as at December 31, 2009 and a consolidated Income Statement for the year endingDecember 31, 2009, for SL and its investee, FVI.



Page 30



Assignment Problem Nine - 1 (Translation Of Long-Term Debt)On December 31, 2009, the Ferber Company, a Canadian company, borrows 3,000,000Malaysia ringgitt (R, hereafter) from the Malaysian government to finance the construction ofa factory. This liability does not require the payment of interest. It will mature in four years onDecember 31, 2013. The Ferber Company has a December 31 year end and exchange rates atBalance Sheet dates are as follows:

December 31, 2009 R1 = $0.40December 31, 2010 R1 = $0.50December 31, 2011 R1 = $0.30December 31, 2012 R1 = $0.30December 31, 2013 R1 = $0.42

The Ferber Company accounts for foreign currency transactions using the recommendationscontained in Section 1651 of the CICA Handbook.

Required: Prepare the journal entries that would be required to account for the loan onDecember 31 of each year to maturity. In addition, calculate the total exchange gain or lossthat resulted from having this loan outstanding and paying it off.

Assignment Problem Nine - 2 (Foreign Currency Investments)Foret Inc. is a Canadian company with a December 31 year end. On April 1, 2009, Foret Inc.acquires 20,000 shares of a Norwegian corporation at a cost of 50 Norwegian Kroner (NK,hereafter) per share. The total cost of the investment is NK1,000,000.

On October 15, 2009, the Norwegian company declares and pays a dividend of NK0.75 pershare.

When Foret closes its books on December 31, 2009, the fair value of the shares has decreasedto NK48 per share.

On September 1, 2010, all of the shares are sold for NK47 per share.

Relevant spot exchange rates for the Nowegian Kroner are as follows:

April 1, 2009 NK1 = $0.18October 15, 2009 NK1 = $0.19December 31, 2009 NK1 = $0.17September 1, 2010 NK1 = $0.20

Required:

A. Provide dated journal entries to record the preceding information assuming that ForetInc. classifies its investment as held for trading.

B. Provide dated journal entries to record the preceding information assuming that ForetInc. classifies its investment as available for sale.



Page 31

Assignment Problem Nine - 3 (Hedging Transactions - Various Cases)

RequiredIn each of the following independent Cases, provide the dated journal entries required torecord the foreign currency transactions described. All of the enterprises involved in thesetransactions have a December 31 year end. The present value of $1, discounted at a rate of 1percent per month, for relevant periods is as follows:

One Month $0.99010Two Months $0.9803012 Months $0.8874524 Months $0.78757

Case OneOn November 15, 2009, Martin Ltd. sells merchandise in South Africa for 250,000 SouthAfrican rands (R, hereafter). On this date, the spot rate for the rand was R1 = $0.15. Paymentfor this merchandise is expected on March 1, 2010 and, in order to hedge their position, onNovember 15, 2009 Martin Ltd. enters a forward exchange contract to deliver R250,000 onMarch 1, 2010 at a rate of R1 = $0.175. Martin does not designate a hedging relationshipbetween the Accounts Receivable and the forward exchange contract. Additional exchangerates are as follows:

Spot Rate - December 31, 2009 R1 = $0.16Two Month Forward Rate - December 31, 2009 R1 = $0.17Spot Rate - March 1, 2010 R1 = $0.18

Case TwoOn June 30, 2009, Wilson Inc. makes a commitment to buy Swiss merchandise at a cost of125,000 Swiss francs (SF, hereafter). On this date, the spot rate for Swiss francs isSF1 = $1.08. The merchandise is to be delivered and paid for on January 1, 2010. TheCompany decides to hedge this commitment by entering a forward exchange contract to takedelivery of SF125,000 at a rate of SF1 = $1.11 on December 1, 2009. On this date, theexchange rate is SF1 = $1.09.

The Company takes delivery of the Swiss francs on December 1, 2009 and purchases aSF125,000 Swiss term deposit that matures on January 1, 2010. This term deposit earnsinterest of SF1,000 during the the period December 1, 2009 through December 31, 2009.SF125,000 of the proceeds from the maturing term deposit are used to pay for the merchan-dise on January 1, 2010. The remaining SF1,000 is converted to Canadian dollars on January1, 2010. The spot exchange rate on both December 31, 2009 and January 1, 2010 isSF1 = $1.09.

Wilson Inc. does not use hedge accounting to deal with any of these transactions.

Case ThreeOn October 1, 2009, Lalonde Ltd. purchases merchandise in Sweden for 800,000 Swedishkrona (K, hereafter). Payment for this merchandise is to be made on February 1, 2010. OnOctober 1, 2009, the spot rate for the krona is K1 = $0.190. Also on October 1, 2009,Lalonde enters a forward exchange contract to take delivery of K2,000,000 at a rate of K1 =$0.180 on February 1, 2010.

The spot exchange rate on December 31, 2009 is K1 = $0.170. The one month forward rateon this date is $0.160. The payable for the merchandise and the forward exchange contractare settled on February 1, 2010. On this date, the spot rate for the Krona is K1 = $0.185.

Lalonde does not designate a hedging relationship between the Accounts Payable and theforward exchange contract.


Page 32

Case FourOn January 1, 2009, Fin Min Ltd. is granted a £1,000,000, interest free loan from one of itsBritish suppliers. The exchange rate at this time is £1 = $1.86. The loan matures onDecember 31, 2011 and, in order to hedge this obligation, Fin Min enters into a forwardexchange contract to take delivery of £1,000,000 on December 31, 2011 at £1 = $1.87. FinMin does not document a hedging relationship between the liability and the forward contract.

Relevant exchange rates are as follows:

Forward Rate ToDate Spot Rate December 31, 2011

December 31, 2009 £1 = $1.88 £1 = $1.89December 31, 2010 £1 = $1.85 £1 = $1.87December 31, 2011 £1 = $2.00 N/A

The loan is repaid as scheduled on December 31, 2011.



Page 33



Assignment Problem Ten - 1 (Income Statement Translation)The Israeli Company, Afula Inc., is a wholly owned subsidiary of the Canadian company,Goodnite Inc. Goodnite Inc. acquired its investment in the shares of Afula on January 1,1996. The Statement Of Income And Change In Retained Earnings for Afula Inc. in Israeli NewShekels (S, hereafter) for the year ending December 31, 2009 is as follows:

Afula CompanyStatement of Income and Change in Retained Earnings

Year Ending December 31, 2009

Sales Revenue S4,500,000

Cost Of Goods Sold S1,500,000Amortization Expense 225,000Interest Expense 150,000Selling And Administrative Expense 375,000Loss On Expropriation Of Land 300,000Income Taxes (S675,000 - S45,000) 630,000

Total Expenses And Losses S3,180,000

Net Income S1,320,000Dividends Declared ( 120,000)

Increase In Retained Earnings S1,200,000

Other Information:

1. Sales occur evenly throughout the year.

2. The inventory on hand on January 1, 2009 was purchased on September 30, 2008 forS450,000. Purchases during 2009 of S1,800,000 occurred evenly over the first threequarters. The inventory on hand on December 31, 2009 was purchased on September30, 2009. Inventory is accounted for on a first-in, first-out inventory flow assumption.

3. The Amortization Expense pertains to a building which was purchased on January 1,1999.

4. The Interest Expense relates to the 10 percent, 20 year bonds which were issued forS1,500,000 on January 1, 2009.

5. The Selling And Administrative Expenses occurred evenly over the year.

6. The expropriation loss arises from the expropriation of a parcel of land which waspurchased on January 1, 1999 for S750,000. This land was expropriated by the localgovernment on December 31, 2009 for proceeds of S450,000. Income taxes of S45,000were recovered due to the loss.

7. Income Taxes accrued evenly over the year, except for the tax recovery related to theexpropriation described in Part 6.

8. The dividends of Afula Inc. were declared on September 30, 2009 and paid on December31, 2009.

9. The net monetary assets of Afula Inc. on January 1, 2009, before the issuance of theS1,500,000 in bonds (see Part 4), totalled S2,250,000.



Page 34

10. The relationship between the New Israeli Shekel and the Canadian dollar on relevantdates was as follows:

January 1, 1999 S1 = $.20September 30, 2008 S1 = $.24January 1, 2009 S1 = $.25March 31, 2009 S1 = $.27June 30, 2009 S1 = $.29September 30, 2009 S1 = $.31December 31, 2009 S1 = $.33Average For 2009 S1 = $.29

Changes in the exchange rate occurred uniformly over the year 2009.

Required: Translate the Statement Of Income And Change In Retained Earnings of the AfulaCompany for use in the preparation of the 2009 consolidated financial statements of theGoodnite Company assuming:

A. the Afula Company is an integrated foreign operation.

B. the Afula Company is a self-sustaining foreign operation.

Note that a Statement of Comprehensive Income is not required.

Assignment Problem Ten - 2(Translation O Financial Statements - Integrated Foreign Operation)On December 31, 2007, the Olaf Company, a Danish retail operation, was acquired by aCanadian company. On this acquisition date, the carrying values of all of the identifiableassets and liabilities of the Olaf Company equalled their fair values and the Canadian parentpurchased 100 percent of the voting shares of Olaf at their book value. On December 31,2007, the Olaf Company had the following account balances in krone (Kr, hereafter):

Retained Earnings Kr 192,000No Par Common Stock Kr1,200,000Land Kr 600,000Equipment Kr 510,000Accumulated Amortization - Equipment Kr 70,000Building Kr2,100,000Accumulated Amortization - Building Kr 320,000

The adjusted Trial Balance of the Olaf Company for the year ending December 31, 2009 is asfollows:

Cash Kr 150,000Accounts Receivable 255,000Inventory 510,000Equipment 690,000Building 2,100,000Land 600,000Cost of Goods Sold 2,400,000Amortization Expense 240,000Other Expenses 960,000Dividends Declared 600,000

Total Debits Kr8,505,000



Page 35

Accounts Payable Kr 450,000Long-Term Note Payable 900,000No Par Common Stock 1,200,000Retained Earnings 600,000Sales 4,500,000Accumulated Amortization 840,000Allowance For Doubtful Accounts 15,000

Total Credits Kr8,505,000

Other Information:

1. Sales and inventory Purchases occurred uniformly over the year. The Other Expensesinclude Kr6,000 of bad debts which were credited to the Allowance For DoubtfulAccounts on December 31, 2009. Also on December 31, 2009, Kr9,000 in bad debtswere written off against the Allowance For Doubtful Accounts. The remainder of theOther Expenses occurred uniformly over the year.

2. The exchange rate for the Danish krone and the Canadian dollar is as follows:

December 31, 2007 Kr1 = $0.1000December 31, 2008 Kr1 = $0.1600Average for the 2008 fourth quarter Kr1 = $0.1525December 31, 2009 Kr1 = $0.2000Average for 2009 Kr1 = $0.1800Average for the 2009 fourth quarter Kr1 = $0.1950

3. The dividends were declared on January 1, 2009.

4. Year end Inventories are purchased uniformly over the last quarter of each year. OnDecember 31, 2008 the Inventories totalled Kr750,000 and on December 31, 2009 theytotalled Kr510,000.

5. On January 1, 2009, equipment was purchased for Kr180,000. It has an estimated usefullife of six years with no anticipated net salvage value. The Olaf Company uses the straightline method to calculate Amortization Expense.

6. The December 31, 2009 Accumulated Amortization balance is allocated Kr240,000 tothe Equipment and Kr600,000 to the Building.

7. The Long-Term Note Payable was issued on January 1, 2008 and is due on January 1,2012.

8. The Olaf Company had current monetary assets of Kr230,000 and current monetaryliabilities of Kr890,000 as at December 31, 2008.

Required: The Olaf Company is classified as an integrated foreign operation by its Canadianparent. Its financial statements are translated to be included in the consolidated financialstatements of the Canadian parent. Prepare the following in Canadian dollars:

A. A calculation of the exchange gain or loss on the accounts of Olaf Company for 2009.

B. The translated Statement of Income and Change in Retained Earnings of the OlafCompany for the year ending December 31, 2009.

C. The translated Balance Sheet of the Olaf Company as at December 31, 2009.

You may find it useful to translate the adjusted trial balance as of December 31, 2009 prior topreparing the financial statements required.



Page 36

Assignment Problem Ten - 3 (Translation Of Financial Statements)The Statement of Income and Change in Retained Earnings and the comparative BalanceSheets for the year ending March 31, 2009, of the Bulgar Company, a Bulgarian company, inBulgarian lev (L, hereafter) are as follows:

Bulgar CompanyStatement Of Income And Change In Retained Earnings

For The Year Ending March 31, 2009

Sales L67,263,750

Total Revenues L67,263,750

Cost of Goods Sold L45,000,000Amortization Expense 2,700,000Other Expenses 13,725,500Taxes 1,650,000

Total Expenses L63,075,500

Net Income L 4,188,250Dividends On Common Stock ( 1,500,000)

Increase in Retained Earnings L 2,688,250

Bulgar CompanyBalance Sheets As At March 31

2009 2008

Cash And Current Receivables L 4,938,250 L 2,900,000Inventories 3,450,000 3,750,000Plant And Equipment 27,000,000 27,000,000Accumulated Amortization ( 7,200,000) ( 4,500,000)Land 7,500,000 4,500,000

Total Assets L35,688,250 L33,650,000

Current Liabilities L 1,150,000 L 1,800,000Long-Term Liabilities 9,000,000 9,000,000No Par Common Stock 22,500,000 22,500,000Retained Earnings 3,038,250 350,000

Total Equities L 35,688,250 L33,650,000

Other Information:

1. On April 1, 2006, the date of incorporation of the Bulgar Company, No Par CommonStock was issued for L22.5 million. The proceeds were used to purchase Plant And Equip-ment for L18,000,000 and Land for L4,500,000 on the same day. The Plant andEquipment had an estimated service life of ten years with no anticipated salvage value.The Bulgar Company uses the straight line method to calculate Amortization Expense.

2. On April 1, 2007, additional Plant and Equipment was purchased with the proceeds froma L9 million issue of bonds maturing on April 1, 2017. These additions also have a ten yearestimated service life with no anticipated salvage value.

3. The March 31, 2008 Inventories were acquired on January 1, 2008. The Inventories inthe March 31, 2009 Balance Sheet were acquired on January 1, 2009. The BulgarCompany uses the first-in, first-out inventory flow assumption.



Page 37

4. Sales, Purchases and Other Expenses occurred evenly throughout the year. The taxeswere paid quarterly in equal installments.

5. On October 1, 2008, Land was purchased for cash of L3 million.

6. The dividends on common stock were declared on January 1, 2009 updated and paid onFebruary 1, 2009.

7. The exchange rate movements occurred evenly throughout the year. The averageexchange rate for the year ending March 31, 2009 was L1 = $.84. Other foreign exchangerate data for the lev and the Canadian dollar was as follows:

April 1, 2006 L1 = $.75April 1, 2007 L1 = $.78January 1, 2008 L1 = $.78March 31, 2008 L1 = $.82July 1, 2008 L1 = $.85October 1, 2008 L1 = $.84January 1, 2009 L1 = $.83March 31, 2009 L1 = $.85

Required:

A. Assume that the Bulgar Company is classified as an integrated foreign operation. Prepare,in Canadian dollars:

i. a calculation of the exchange gain or loss on the accounts of Bulgar Company the yearending March 31, 2009,

ii. a Statement of Income and Change in Retained Earnings for the year ending March31, 2009,

iii. a Balance Sheet as at March 31, 2008, andiv. a Balance Sheet as at March 31, 2009.

B. Assume that the Bulgar Company is classified as a self-sustaining foreign operation. Youhave been provided with the information that the correct March 31, 2008 balance in theAccumulated Other Comprehensive Income account is a credit of $1,797,000.

Prepare, in Canadian dollars:

i. a Balance Sheet as at March 31, 2008,ii. a calculation of the exchange gain or loss on the accounts of Bulgar Company the year

ending March 31, 2009,iii. a Statement of Net And Comprehensive Income for the year ending March 31, 2009,iv. a Statement of Changes in Shareholders’ Equity for the year ending March 31, 2009,

andv. a Balance Sheet as at March 31, 2009.



Page 38

Assignment Problem Ten - 4(Translation And Consolidation Of Foreign Subsidiary)Canco is a Canadian corporation that specializes in the selling of men’s and women’s pants. Inan attempt to diversify its product line, it acquired 80 percent of the outstanding voting sharesof the Forco Company on December 31, 2009 for $10 million in cash. Forco is a Kiev basedcompany that is famous for a hand embroidered line of sweaters that it sells. Because of theextensive use of common distribution channels that will be possible after this business combi-nation, Forco is classified as an integrated foreign operation.

Forco’s accounting records are expressed in Ukrainian Hryvnias (H, hereafter). The compara-tive Balance Sheets of the two Companies as at December 31, 2009 and December 31, 2010and the Income Statements of the two Companies for the year ending December 31, 2010 areas follows:


(000s Omitted)

Canco Forco

Cash $ 1,000 H 8,000Accounts Receivable 1,000 10,000Inventories 3,000 7,000Investment In Forco (Cost) 10,000 N/APlant And Equipment (Net) 5,000 6,000Land Nil 2,000

Total Assets $20,000 H33,000

Current Liabilities $ 1,000 H 3,000Long-Term Liabilities 5,000 5,000No Par Common Stock 5,000 15,000Retained Earnings 9,000 10,000

Total Equities $20,000 H33,000


(000s Omitted)

Canco Forco

Cash $ 2,000 H 10,000Accounts Receivable 3,100 11,200Inventories 4,000 9,000Investment In Forco (Cost) 10,000 N/APlant And Equipment (Net) 4,400 4,300Land Nil 3,000

Total Assets $23,500 H37,500

Current Liabilities $ 1,500 H 3,500Long-Term Liabilities 5,000 5,000No Par Common Stock 5,000 15,000Retained Earnings 12,000 14,000

Total Equities $23,500 H37,500



Page 39

Canco And Forco CompaniesIncome Statements

For The Year Ending December 31, 2010(000s Omitted)

Canco Forco

Sales $35,000 H40,000

Cost Of Goods Sold $28,000 H32,000Amortization Expense 1,000 500Selling And Administrative Expenses 1,600 1,500Other Expenses And Losses 600 1,000Tax Expense 800 1,000

Total Expenses $32,000 H36,000

Net Income $ 3,000 H 4,000

Other Information:

1. Assume that selected exchange rates between the Hryvnia and the Canadian dollar are asfollows:

January 1, 2004 H1 = $.210March 1, 2004 H1 = $.220July 1, 2009 H1 = $.230December 31, 2009 H1 = $.240Average For 2009 H1 = $.230May 1, 2010 H1 = $.250July 1, 2010 H1 = $.255September 1, 2010 H1 = $.260December 31, 2010 H1 = $.270Average For 2010 H1 = $.255

The exchange rate changed uniformly throughout the period under consideration.

2. At the time Canco acquired its interest in Forco, all of the identifiable assets and liabilitiesof Forco had carrying values that were equal to their fair values except for Equipmentwhich had a fair value that was H1,500,000 greater than its carrying value. The remaininguseful life of this Equipment on December 31, 2009 was twelve years. Forco’s Plant AndEquipment was acquired on March 1, 2004. Both Companies use straight line calcula-tions for all amortization charges.

3. There was no impairment of the goodwill in any of the years under consideration.

4. Selling And Administration Expenses occurred uniformly over the second half of 2010.Sales, Purchases, Other Expenses, and Tax Expense took place evenly throughout theyear.

5. The December 31, 2009 Inventories of Forco were purchased on July 1, 2009. TheDecember 31, 2010 Inventories of Forco were purchased on September 1, 2010.

6. The Long-Term Liabilities of the Forco Company were issued on January 1, 2004 andmature on January 1, 2014. Forco’s No Par Common Stock was also issued on January 1,2004.

7. Neither of the two Companies declared or paid dividends during 2010.



Page 40

8. Forco’s Land consists of two parcels. One was acquired on July 1, 2009 for H2,000,000and the second was purchased for H1,000,000 on September 1, 2010.

9. On May 1, 2010, Canco purchases Equipment from Forco at a price of $250,000. TheEquipment has a carrying value of H1,200,000 on the books of Forco and a remaininguseful life at the time of the sale of four years. This is not the Equipment on which therewas a fair value change at the time Canco acquired Forco.

10. On May 1, 2010, Forco sold H5,000,000 in merchandise to Canco. Of this sale, Cancohad H2,000,000 remaining in the December 31, 2010 Inventories. Sales are priced toprovide a gross profit of 20 percent on the sales price. Both Companies account for Inven-tories on a First In, First Out basis.

Required:

A. Prepare translated Balance Sheets as at December 31, 2009 and December 31, 2010, anda translated 2010 Income Statement for the Forco Company.

B. Using the translated financial statements from Part A, prepare consolidated BalanceSheets as at December 31, 2009 and December 31, 2010, and a consolidated IncomeStatement for the year ending December 31, 2010, for the Canco Company and its subsid-iary, the Forco Company.

In preparing your solution, assume that the non-controlling interest in Forco will bemeasured at its fair value based on the price paid for the contolling interest. Ignore theeffect of intercompany transactions on the consolidated Tax Expense.



Page 41



Assignment Problem Eleven - 1(Restricted Fund And Deferral Method Accounting)The Osgoode Hospital was founded in 1982 in order to provide limited patient care servicesin the local community. It is a not-for-profit organization and was originally funded by dona-tions of $8,400,000. These funds were used to acquire land and to construct and equip theircurrent facility. Prior to 2008, all accounting was done through a single general fund.

In 2008, it instituted a new fund raising campaign to raise funds for replacing some of its agingequipment. As the funds raised in this campaign can only be used for this purpose, manage-ment has established a separate restricted fund. There are no restrictions on the use of anyincome produced by investments made in this fund. Osgoode will account for this Replace-ment Fund using the restricted fund method. However, they will continue to use the deferralmethod for the General Fund.

As of December 31, 2008, the Balance Sheets of the Hospital’s two funds are as follows:

General ReplacementFund Fund

Cash $ 65,000 $125,000Accounts Receivable 105,000Allowance For Bad Debts ( 18,000)Supplies Inventory 46,000Investments (At Cost) 325,000Land 1,090,000Building 5,800,000Building - Accumulated Amortization ( 1,550,000)Equipment 1,950,000Equipment - Accumulated Amortization ( 588,000)

Total Assets $6,900,000 $450,000

Accounts Payable $ 46,000Deferred Contributions -

Building And Equipment 5,612,000Invested In Land 1,090,000Externally Restricted Fund Balance N/A $450,000Unrestricted Fund Balance 152,000

Total Liabilities And Fund Balance $6,900,000 $450,000

Other Information:

1. During 2009, Osgoode billed the provincial government and its patients a total amount of$3,263,000. Of this amount, $2,247,000 was for room and board, with the balance beingfor professional services. All accounts are due within 30 days.

2. Collections of Accounts Receivable during 2009 totaled $2,984,000.

3. During 2009, $27,000 of Accounts Receivable had to be written off. At the end of theyear, is is estimated that further write offs will be equal to 1 percent of annual billings.



Page 42

4. Equipment costing $82,000 was acquired with cash from the Replacement Fund.

5. During 2009, Osgoode paid operating expenses of $3,216,000. They also paid $196,000for supplies.

6. During 2009, an individual contributes $375,000 on condition that this full amount beinvested in government bonds. While the income from these bonds can be used for anypurpose, the principal cannot be used. Osgoode established an Endowment Fund for thiscontribution.

7. During 2009, the hospital received unrestricted contributions of $161,000. In addition,it received interest payments of $12,000 from the investments held in the endowmentfund.

8. Accounts Payable balances are related to operating expenses and to supplies. The respec-tive amounts at December 31, 2008 and December 31, 2009, are as follows:

December 31 December 312008 2009

Operating Expenses $32,000 $35,000Inventory Of Supplies 14,000 18,000

Total $46,000 $53,000

9. Supplies on hand on December 31, 2009 totaled $28,000.

10. Amortization on the building for 2009 was $65,000. For the equipment, the total amorti-zation was $97,000, of which $12,000 related to equipment purchased by theReplacement Fund.

11. On December 31, 2009, accrued interest on the investments in the Replacement Fundwas $17,000. There are no restrictions on the use of this income.

Required: Provide the journal entry that would be required to record each item of OtherInformation. In addition, indicate the fund in which each journal entry would be recorded.



Page 43

Assignment Problem Eleven - 2 (Fund Accounting)The Bookkeepers’ Rehabilitation Fund is a registered Canadian charity, organized to providerehabilitation for those Chartered Bookkeepers (CB’s, hereafter) that have found so muchstress in their daily work that they have been driven to various acts of depravity.

The fund maintains several residences where such individuals are provided with a compre-hensive program of physical and mental therapy. The program is carefully designed to restorethem to their former status as esteemed professionals. The work of the fund is supported by acombination of user fees, support from various community organizations, and an annual fundraising dinner.

The accounting system of this organization is based on three funds. These are an OperatingFund, a Capital Fund, and a Capital Asset Fund. As the name implies, all operating revenuesand most operating expenses are recorded in the Operating Fund.

The Capital Fund is used to record major grants from government organizations. Alsorecorded here would be allocation of these grants to either the Capital Asset Fund or the Oper-ating Fund, as well as income from investments made with Capital Fund resources.

The Capital Asset Fund is designed to record capital assets purchased from both the CapitalFund and the Operating Fund. Amortization of these assets is also recorded in this fund as adirect reduction of the Fund Balance

On January 1 of the current year, the Balance Sheets of the three Funds are as follows:

Operating Fund

AssetsCash $290,000Temporary Investments (At Cost) 605,000Interest Receivable 28,000Fees Receivable 47,000

Total $970,000

EquitiesAccounts Payable $205,000Wages Payable 155,000Unrestricted Balance 610,000

Total $970,000

Capital Fund

AssetsCash $ 28,000Term Deposits 895,000

Total $923,000

EquitiesFund Balance $923,000

Total $923,000

Capital Asset Fund

AssetsFurniture and Fixtures $4,150,000Buildings 3,110,000Accumulated Amortization ( 2,585,000)

Total $4,675,000



Page 44

EquitiesFund Balance $4,675,000

Total $4,675,000

Other Information:

1. During the year, the Fund billed user fees totalling $3,395,000. Collections for the yearwere $3,102,000 while, at the end of the year, $172,000 in billed fees were judged to beuncollectible.

2. During the year, community organizations pledged total contributions of $11,215,000.At the end of the current year, $275,000 of this amount had not been received. There areno restrictions on the use of these contributions.

3. The annual fund raising dinner is scheduled for December 1. A separate Dinner Fund isestablished to account for this event and, on November 1, $875,000 was advanced fromthe Operating Fund to set up this special Fund. The event was a success, generating totalrevenues of $3,425,000 and incurring total costs of $1,015,000. All revenues had beencollected at the event but there were $130,000 in costs which had not been paid. TheDinner Fund repaid the original $875,000 advanced from the Operating Fund and, inaddition, disbursed $2,395,000 as a loan to the Operating Fund.

4. During the year, salaries and wages of $11,422,000 were paid. At the end of the currentyear, accrued salaries and wages amounted to $217,000.

5. During the year, invoices for goods and services were received in the amount of$4,427,000. Payments on Accounts Payable for the year were $4,425,000.

6. The Temporary Investments in the Operating Fund were sold during the year for$617,000. Also during the year, the Operating Fund collected interest of $63,000,including the $28,000 accrual in the January 1 Balance Sheet.

7. Under a special grants program, the Federal Government has agreed to provide$5,000,000 towards the acquisition of an existing building. The building is to beconverted into a large new residence to accommodate the increasing numbers of CBsrequiring the help of the Fund. The first $2,000,000 of this grant was received during thecurrent year. The Bookkeepers’ Rehabilitation Fund incurred costs of $205,000 in antici-pation of acquiring the new building. A total of $15,000 of these costs were unpaid at yearend. Of the remaining cash, $1,750,000 was invested in term deposits. Both the prin-cipal and interest of all term deposits were rolled over every thirty days, with the totalbalance rising to $2,765,000 on December 31 of the current year.

8. Amortization on the capital assets amounts to $890,000 for the year.

Required: For each of the four funds, including the temporary Dinner Fund:

A. Provide the journal entry that would be required to record each item of Other Informa-tion. Your solution should indicate the fund in which each journal entry would berecorded.

B. Provide a Statement Of Operations And Fund Balances and a Statement Of Financial Posi-tion. Note that there is no Statement Of Operations And Fund Balances for the CapitalAsset Fund.



Page 45

Assignment Problem Eleven - 3 (Accounting Recommendations)On August 15, 2006, the European Exchange Club (EEC) was formed in an effort to create aunited social group out of several separate regional clubs in the vicinity of the city of Decker,located in central Canada. The purpose of the group is to combine resources to meet therecreational, cultural, and social needs of its collective members. EEC was formed throughthe collaboration of the following clubs and their memberships:

Members

The Canadian Russian Society 12,300The Italian Clubs Of Canada 10,800Portuguese Cultural Foundation 4,100Association Of Greeks Of The World 2,700The German Groups 1,100Other 1,700

Total 32,700

It is now December 2009. EEC’s executives have spent the past few years planning andpreparing for its operation. The club’s community centre is expected to be fully completednext year. The facilities of the club will include the following:

• a multi-purpose building to house banquets, meetings and arts activities• hiking trails• indoor/outdoor tennis facilities• bicycle trails• baseball diamonds• an indoor/outdoor pool• a soccer field

The multi-purpose building is 75 percent complete, and EEC’s executives have stated that it is“approximately within budget.” Estimated building costs were outlined in a 2006 feasibilitystudy, as follows:

Construction Cost $2,300,000Site Preparation Costs 400,000Furniture And Fixtures 550,000Consulting Fees 120,000Miscellaneous 80,000

Total $3,450,000

The four acres of land on which the facility is built were provided by the provincial govern-ment by way of a five-year lease at $1 a year. The adjacent land of 60 acres was contributed tothe club by The Italian Clubs Of Canada. Previously, this land had been leased to a farmer for$54,000 a year. The 64 acres will be used for the following projects, which will incur the addi-tional costs listed below:

Hiking Trails $ 595,000Baseball Diamonds 30,000Soccer Field 22,000Bicycle Trails 95,000Indoor/Outdoor Pool 700,000Indoor/Outdoor Tennis Facilities 300,000

Total $1,742,000



Page 46

In addition to these development costs, the club faces annual operating costs of approxi-mately $740,000, outlined in Exhibit I. John Mendez-Smith, the newly elected president ofthe club, has approached your firm, Young and Kerr Accountants, to prepare a report thatprovides recommendations on accounting. You took the notes appearing in Exhibit II at ameeting with the club’s president and executive committee.

Required: Prepare the report.

(CICA Adapted)

Exhibit IEuropean Exchange Club

Yearly Budget

Operating RevenuesMembership Fees $ 91,000Social Rentals 185,000Meeting Rentals 50,000Sport Rentals 23,000Concessions 61,000Fundraising Events 225,000

Total Operating Revenues $635,000

Operating CostsSalaries $363,000Administrative Costs 39,000Maintenance 126,000Utilities 112,000Educational Scholarships 100,000

Total Operating Costs $740,000

Exhibit IINotes Taken From Your Meeting With

Mr. Mendez-Smith And The Executive Committee

1. Under the lease agreement with the province, EEC is responsible for maintenance and allcosts of improvements. The lease agreement provides for 20 renewal terms of five years’duration each. Renewal is based on the condition that EEC makes the club’s servicesavailable to all present and future EEC member-clubs and their membership.

2. EEC has requested an operating grant from the provincial government. Its proposalrequests the province to provide EEC with annual funds to cover 50 percent of “approved”operating costs incurred to provide services to all club members.

The City of Decker wishes to construct an arena and a swimming pool and has opposedthe proposed operating grant. The City has asked to be the first in line for availableprovincial funds.

The committee members suspect that they will have to compromise on their proposal andare having problems determining the minimum annual funds required by the club fromthe province.

3. The Russian and Italian clubs have been arguing with other clubs over the equalization



Page 47

payments required from each club. Currently, each club makes payments to EEC basedupon their proportionate membership. Payments for each calendar year are made onFebruary 1 of the following year.

The Russian group performs the administrative functions of EEC and has charged, andwill continue to charge, the club only 50% of the market value of these services.

4. The accounting function is a major concern of the member-club representatives. Inparticular, they have raised the following issues:

a) Several fund raising events are organized by individual member clubs.

b) Any donations to EEC are received through the member clubs.

c) No accounting has been made of services donated to EEC by the members of the indi-vidual clubs.

d) EEC has approached a bank to assist in future phases of the club’s development. Thebank has informed EEC that it is interested in asset values and EEC’s ability to repay theloans.



Page 48

Documents

Contents Of Assignment Problems - castore.ca · Contents Of Assignment Problems Problems For Chapter 2 1 ... Canadian Advanced Accounting (2nd IC Edition) - Assignment Problems Assignment