COMMERCE/BUSINESS 453

SOLUTIONS TO PRACTICE MID-TERM EXAMINATION

QUESTION 1 (20 marks)

2009 2010
NI OCI NI OCI

Haricot Inc.

Acquisition expenses (1,200)

Nov 30/09 dividends 3,000
Revaluation
Carrying value 120,000
Market value 128,000 8,000

Acquisition expenses (650)

May 31/10 dividends 5,625
Gain of sale of shares
Proceeds 140,000
Carrying value
(2/3 of [128,000 + 65,000]) 128,667 11,333
Nov 30/10 dividends 1,875
Revaluation
Carrying value 64,333
Market value 70,000 5,667

Artichoke Inc.

June 30/09 dividends 6,250

Dec 31/09 dividends 6,250
Revaluation
Carrying value 200,000
Market value 225,000 25,000

June 30/10 dividends 10,000

Gain on sale
Proceeds 255,000
Cost 200,000 55,000

Write-back of OCI (25,000)

Sunflower Company

Nov 30/09 dividend 6,000

Revaluation
Carrying value 120,000
Market value 135,000 15,000

May 31/10 dividend 6,000

Nov 30/10 dividend 6,000
Gain on acquiring control
Cost 120,000
Fair value 150,000 30,000

Write-back of OCI (15,000)

Net income 28,300 40,000 130,850 (40,000)

Other comprehensive income 40,000 (40,000)
Comprehensive income 68,300 90,850
COMMERCE/BUSINESS 453

SOLUTIONS TO PRACTICE MID-TERM EXAMINATION

QUESTION 2 (10 marks)

Consideration for 80% of common shares 2,400,000

Implied value of 100% of common shares 3,000,000

Net book value at acquisition
Total shareholders' equity 3,100,000
Less: allocated to preferred shares
Stated value 600,000
Redemption premium 30,000
Dividends in arrears 24,000 654,000 2,446,000
Acquisition differential allocated to goodwill 554,000

Consideration for 50% of preferred shares 300,000

Carrying value of 50% of preferred shares 327,000
Contributed surplus from purchase of preferred shares (27,000)

Peacock Inc. and Subsidiary

Partial Consolidated Balance Sheet
as at December 31, 2006

Preferred shares (per parent) 1,000,000

Contributed surplus (300,000 + 27,000) 327,000
Common shares (per parent) 2,000,000
Retained earnings 1,535,200
Noncontrolling interest 923,800
5,786,000

Parent's retained earnings 1,500,000

Subsidiary's retained earnings 1,080,000
Less: at acquisition 976,000
104,000
Goodwill impairment (60,000)
44,000
Less: NCI at 20% 8,800 35,200
1,535,200

Total shareholders' equity 3,180,000

Unamortized acquisition differential 494,000
3,674,000
Allocted to preferred shares:
Stated value 600,000
Redemption premium 30,000
Dividends in arrears - 630,000
3,044,000

Noncontrolling interest:
in preferred shares (50% of 630,000) 315,000
in common shares (20% of 3,044,000) 608,800
923,800
COMMERCE/BUSINESS 453

SOLUTIONS TO PRACTICE MID-TERM EXAMINATION

QUESTION 3 (30 marks)

Consideration of 75% interest 2,250,000

Implied value of 100% interest 3,000,000

Net book value at acquisition 2,500,000
Acquisition differential 500,000
Allocated to:
Building 200,000
Inventory (60,000) 140,000
Goodwill 360,000

Amortization/impairment schedule

At acq'n 2004-2006 2007 Balance

Building 200,000 (30,000) (10,000) 160,000
Inventory (60,000) 60,000 - -
Goodwill 360,000 (20,000) (80,000) 260,000
500,000 10,000 (90,000) 420,000

Eliminations:

Intercompany dividends 60,000

Sales/cost of sales (downstream) 400,000

Unrealized/realized gains and losses:

Equipment (upstream) Gross Inc Tax Net

At date of sale 70,000 (28,000) 42,000
Amortiz'n adj 2006 (17,500) 7,000 (10,500)
52,500 (21,000) 31,500
Amortiz'n adj 2007 (17,500) 7,000 (10,500)
35,000 (14,000) 21,000

Inventory
Opening, downstream 60,000 (24,000) 36,000
Opening, upstream
Ending, downstream 90,000 (36,000) 54,000
Ending, upstream

Calculation of consolidated net income:

Parent's net income 600,000

Less: dividends from subsidiary (60,000)
Realized profit in opening inventory 36,000
Unrealized profit in ending inventory (54,000)

Subsidiary's net income 200,000

Amortization of purch discrepancy (90,000)
Amort'n adjustment on equipment sale 10,500 120,500
Consolidated net income 642,500
Calculation of consolidated retained earnings:
January 1/07 Dec 31/07
Parent's RE 2,550,000 3,000,000
Unrealized gain re inventory (36,000) (54,000)
2,514,000 2,946,000

Subsidiary's RE 1,880,000 2,000,000

Less: at acquisition 1,000,000 1,000,000
880,000 1,000,000
Amort'n of acq'n differential 10,000 (80,000)
Unrealized gain re equip sale (31,500) (21,000)
858,500 899,000
Less: NCI of 25% (214,625) (224,750)
643,875 674,250

Consolidated RE 3,157,875 3,620,250

Proof:
Opening CRE 3,157,875
CNI 642,500
Less: NCI therein (25% of 120,500) (30,125) 612,375
Less: dividends (150,000)
3,620,250

(a)
Port Company and Subsidiary
Consolidated Income Statement
for the year ended December 31, 2007

Sales and other income (7,250,000 + 3,300,000 - 60,000 - 400,000) 10,090,000

Cost of goods sold (5,000,000 + 2,000,000 - 400,000 - 60,000 + 90,000) 6,630,000
Amortization expense (750,000 + 500,000 + 10,000 - 17,500) 1,242,500
Other expenses 1,080,000
Income tax expense (350,000 + 70,000 + 7,000 + 24,000 - 36,000) 415,000
Goodwill impairment 80,000
Consolidated net income 642,500

(b) (i) Inventory (800,000 + 300,000 - 90,000) 1,010,000

(ii) Buildings (2,400,000 + 1,500,000 + 160,000) 4,060,000

(iii) Ending RE (as calculated above) 3,620,250

(c) Subsidiary's net income 200,000

Amortization of acquisition differential (90,000)
Realized gain re machine sale 10,500
120,500
Less:NCI of 25% (30,125) 90,375
Realized gain re opening inventory 36,000
Unrealized gain re ending inventory (54,000)
72,375

(d) (i) Goodwill

as above 260,000
Less: NCI portion at 25% (65,000) 195,000
(ii) Buildings (same as entity method) 4,060,000