Question 1 (40 minutes, 35 marks)
On January 1, 2019, Patriot Co. (Patriot) purchased 70%, of the 100,000 issued and outstanding voting shares of Saints Ltd. (Saints) for $800,000. Patriot paid $800,000 cash to acquire this investment. On the acquisition date the shares of Saints were trading at $11.00 per share. Patriot uses the cost method to account for its investment in Saints and has no other investments. The goodwill at acquisition was determined as follows:
$ 800,000 (420,000) (262,500) $ 117,500
Accounts Receivable
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Inventory (23,100) Land 98,000 Equipment 43,400 Goodwill $ 221,800
Additional information:
$ 330,000 (180,000)
(112,500) $ 37,500
(6,000) (9,900) 42,000 18,600 $ 82,200
$ 1,130,000
(375,000) $ 155,000
(20,000) (33,000) 140,000 62,000 $ 304,000
Purchase Price Common shares Retained Earnings Acquisition differential Allocated to
1. Saints turns over its inventory 4 times per year. Accounts
2. At acquisition, the equipment had a useful life of 8 years.
3. During 2020, Saints sold 20% of the land that existed at acquisition for proceeds of $100,000. In 2022,
50% of the original amount of land (that existed at acquisition) was sold for proceeds of $300,000.
4. Goodwill acquired and recorded on consolidation is tested for impairment annually. An impairment loss of
$40,000 was incurred in 2021. No further impairment was determined for 2022.
5. In 2021, Patriot sold $425,000 of inventory to Saints. At the end of 2021, 10% of that inventory remained
in Saints inventory. Patriot earns a gross profit of 30% on their inventory.
6. In 2022, Saints sold $700,000 of inventory to Patriot. At the end of 2022, 30% of that inventory remains in
Patriots inventory. Saints earns a gross profit of 35% on their inventory.
7. Patriot rented some land to Saints in 2021 and 2022. Total rent charged in 2021 and 2022 was $75,000
and $80,000, respectively.
8. On September 29, 2022, Patriot sold a parcel of land to Saints. The land had a carrying value of
$150,000 and was sold for proceeds of $250,000.
9. Both companies have a tax rate of 25% for all sources of income.
(continued on next page)
Receivables turns over every 54 days.
Question 1, continued
The following are the separate entity financial statements for Patriot and Saints as at December 31, 2022:
Patriot Cash and receivables $ 465,000 Inventory 700,000 Property and equipment, net 2,900,000 Land 1,000,000 Investment 800,000 Total assets $ 5,865,000
Accounts payable $ 805,000 Dividends payable 50,000 Bonds payable -0- Other liabilities 2,800,000 Common shares 900,000 Retained earnings 1,310,000
Total liabilities and equity $ 5,865,000
Revenue $ 4,800,000 Cost of goods sold 3,600,000 Gross margin 1,200,000
Operating expenses 440,000 Depreciation expense 310,000 Other (income)/expense, net 190,000 Net income $ 260,000 Retained earnings, opening 1,200,000 Dividends (150,000) Retained earnings, closing $ 1,310,000
Saints $ 505,000 670,000 1,365,000 450,000 -0- 2,990,000
$ 600,000 40,000 1,000,000 -0- 600,000 750,000 2,990,000
2,700,000 2,000,000 700,000
230,000 155,000 120,000
$195,000 645,000 (90,000) $ 750,000
consolidation, prepare the following:
a. Calculate opening consolidated retained earnings for 2022.
b. Calculate the opening NCI balance sheet account for 2022.
c. Prepare the eliminating entry to adjust the opening balance sheet amounts for the current year.
d. Calculate consolidated net income attributable to parent and attributable to NCI for 2022.
e. Calculate the goodwill and non-controlling interest on the consolidated statement of financial position at September 30, 2022, under the identifiable net assets method.
End of question 1
Please round all numbers to the nearest dollar. Using the Fair Value Entity Method for
Question 2 (20 marks, 20 minutes)
On January 1, 2019, . purchased 3,000 shares, representing 35% of , for $380,000. Peralta is a publicly traded company. Santiago’s total net income was $86,000 for the year ended December 31, 2019. Santiago paid dividends totaling $25,000 during 2019. At the end of 2019, each share of Santiago was trading at $160 per share.
During 2020, Santiago¡¯s incurred a loss of $115,000, which included an extraordinary gain (net of tax) of $15,000. Santiago paid dividends totaling $22,000 during 2020. At the end of 2020, each share of Santiago was trading at $125 per share.
Required: Please be specific
1. Based on the information above and assuming Peralta reports its investment in Santiago using
a. Prepare the proper format journal entries Peralta would need to report for its investment in
Santiago for 2019.
b. Determine the investment account balance at the end of December 31, 2020.
2. Now assume that 35% share ownership allows Peralta to exercise significant influence (i.e. Santiago is considered an Associate) over Santiago:
a. Prepare the journal entries Peralta would need to report for its investment in Santiago for 2019 and 2020.
b. Determine the investment account balance at the end of December 31, 2020.
End of Question 2
End of Exam
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