ACCT4201_

Question 1: Problem 9-14

A)
Particulars Amount
Fair value of equipment $2,000,000
Carrying amount $1,700,000
Unrealized gain $300,000

Equity Method, Journal entries

Date Particulars Debit Credit
Jan 1, Year 3 Investment in Jager 2,000,000
Equipment 1,700,000
Unrealized gain 300,000
(record initial investment)

Dec 31, Year 3 Investment in Jager 80,000

(200,000*40%)
Net income from Jager 80,000
(record 40%of net income)

Unrealized gain 37,500

Gain on transfer to Jager 37,500
(300,000/8 years expected
useful life)

B)
Particulars Amount
Fair value of equipment $2,000,000
Carrying amount of equipment $1,700,000
Gain on transfer of equipment $300,000
Portion recognized from sale $135,000
Unrealized portion $165,000

Journal Entries
Date Particular Debit Credit
Jan 1, Year 3 Cash 900,000
Investment in Jager 1,100,000
Gain on sale of equipment 135,000
Equipment 1,700,000
Unrealized gain 165,000
(to record initial investment)

Dec 31, Year 3 Investment in Jager 80,000

Equity method income 80,000
(Record 40% of net income)
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Unrealized gain 20,625

Gain on transfer to Jager 20, 635
(recognize portion of the gain 165,000/8
years = $20,625)
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Question 2: Problem 7-2:

Particulars Before Tax 40% tax After tax

Sale of year 2 $15,000
Depreciation Dec 31, Year 3 6,000
Balance Dec 31 9,000 3,600 5,400
Depreciation Year 4 3,000 1,200 1,800 (1)
Balance Dec 31, Year 4 6,000 2,400 3,600 (2)

A)
Calculation of consolidated profit Year 4
Particulars Amount
Profit for Peggy $185,000
Profit of Sally $53,000 54,800
Add: Equipment gain 1,800
Adjusted profit 239,800

Peggy Shareholder’s 226,100

NCI (54,800*25%) 13,700
239,800

B)
Consolidated Income Statement
Particulars Amount
Revenues ($580,000+270,000) $850,000
Depreciation expense (167,000+97,000- 256,000
3,000)
Income tax exp (123,000+32,000+1,200) 159,200
Miscellaneous expense 195,000
Total expense 610,200
Consolidated profit 239,800

Shareholder’s Peggy 226,100

NCI 13,700
Total 239,800

Deferred Income Tax $2,400

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Question 3: Problem 7-16:

Particulars Champlain (80%)

Cost of 80% investment in Samuel 129,200
Fair value of NCI’s interest in Samuel (which 28,000
is mentioned in question 20% shares on the
value of $14 (2,000*14)

Carrying Amounts of Samuel’s Net Assets

Particulars
Ordinary shares 50,000
Retained earnings 12,000
Total Shareholder’s equity 62,000 49,600 12,400
Acquisition differential Jan 1, year 79,600 15,600
4

Allocation FV-CA
Inventories (18,000) (14,400) (3,600)
Patent 14,000 11,200 2,800
Balance - Goodwill 82,800 16,400

Amortization Table
Particulars Jan 1/4 Year 4 to 7 Year 8 Dec 31/8
Inventories (18,000) (18,000)
Patent 14,000 7,000 1,750 5,250
Subtotal (4,000) (11,000) 1,750 5,250
Goodwill 82,800 34,800 19,200 28,800
NCI 16,400 6,600 3,600 6,200
95,200 30,400 24,550 40,250

Profits
Before Tax 40% tax After Tax
Opening inventory 1,900 760 1,140
Closing inventory 3,300 1,320 1,980

Gain on Equipment Jan 1/6 21,000

Depreciation to Dec 31 (7,000)
(21,000/6*2)
Balance Dec 31, Year 7 14,000 5,600 8,400
Depreciation Year 8 (21,000/6) (3,500) (1,400) (2,100)
Balance Dec 31, Year 8 10,500 4,200 6,300

Gain on land 7,000 2,800 4,200

ACCT4201_

Revenues & Expenses, receivables & payable:

Sales & purchase $92,000

Dividends receivables & payable (5,500*80%) $21,000

Accumulated depreciation for Samuel $17,000

Deferred Income Taxes

Inventory + Equipment + Land = $1,320+$4,200+$2,800 = $8,320

Calculation of consolidated profit

Profits of Champlain $42,800

Less: Dividend (11,000*80%) 8,800
Adjusted Profit $34,000

Profit of Samuel $13,000

Add: Realized profit 1,140
Equipment gain 2,1003,240
$16,240

Less: Unrealized profit ($1,980)

$14,260
Less: Amortization of acquisition
Champlain share $20,600
NCI Share 3,950 (24,550)

Adjusted Profit (10,290)

Profit23,710
Shareholders of Champlain 24,808
NCI (20%*14,260) – 2,950 (1,098)
23,710
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A)(1) Consolidated Income Statement for Champlain Ltd.

Year 8

Sales (535,400+270,000-92,000) $713,400

Miscellaneous revenue (9,900-8,800) 1,100
Total Revenue $714,500 (a)

Cost of sales (364,000+206,000- $479,400

92,000+3,300-1,900)
Admin exp 88,050
(46,300+20,700+1,750+19,200+3,600-
3,500)
Selling expense (78,400+24,100) 102,500
Income tax (13,800+6,200+760- 20,840
1,320+1,400)
Total expense 690,790 (b)
Profit (a-b) 23,710
$714,500

Attributable to:

Shareholders of Champlain 24,808

NCI (20%*14,260) – 2,950 (1,098)
23,710

Calculations of Retained earning

Particulars Amount
Retained earnings $45,500
Less: Unrealized profit (4,200)
Adjusted 41,300

Retained earnings of Samuel 68,000

At the time of acquisition 12,000
Increase 56,000
Less: Unrealized profit (1,140)
Unrealized equipment gain (8,400)
Adjusted Increase 46,460
Champlain’s ownership % 80% 37,168
Less: Champlain share of (26,000)
amortization
Retained earnings $52,468
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Part 2:
Consolidated Retained Earnings Statement
Particulars Amount
Retained earnings Jan 1, year 8 $52,468
Add: Profit 24,808
Less: Dividend (20,000)
Retained earnings Dec 31 57,276

Calculation of non-controlling Interest

Particulars Amount
Ordinary Shares $50,000
Retained earnings 70,000
Total shareholder equity 120,000
Less: Unrealized profit (1,980)
Unrealized equipment gain (6,300)
Adjusted shareholders’ equity 117,720
NCI 20%

Add: NCI Share 7,250

NCI Dec 31 $29,594

Part 3:
Statement of Financial Position
Assets Amount
Property, Plant & Equipment 257,000
(198,000+104,000-7,000-21,000-17,000)
Accumulated depreciation (86,000+30,000- (88,500)
10,500-17,000)
Goodwill 35,000
Deferred Income tax 8,320
Inventories (35,000+46,000-3,300) 77,700
Accounts receivable (60,000+55,000- 89,600
21,000-4,400)
Cash (18,100+20,600) 38,700
Total Assets $423,070

Liabilities
Ordinary shares 225,000
Retained earnings 57,276
NCI 29,594
Dividends payable (5,000+5,500-4,400) 6,100
A/P (56,000+70,100-21,000) 105,100
Total Liabilities & shareholders’ equity $423,070
7,000+3,500= 10,500
ACCT4201_

B)
Exactly when the get on the idea of the rigging is discarded on mix, the equipment is
reiterated to its passing on a motivator on Champlain's books going before the
intercompany bargain. The passing on regard addresses Champlain's one of a kind cost less
gathered amortization considering the bona fide cost. After the hardening adjustment, the
apparatus is represented at the chronicled cost to the assembled substance net of gathered
amortization.
ACCT4201_

Question 4:
Part A, B & C:

Particulars Amount
Cost of 70% investment $45,500
Implied value of 100% $65,000
Carrying amount
Ordinary shares: $20,000
Retained earnings: $20,000 $40,000
Acquisition differential $25,000
Allocated to:
Inventory: $5,000
Building & equipment: $10,000 $15,000
Goodwill 10,000

Share of Non-Controlling Interest: $19,500

Amortization & Impairment Table

Particulars Balance Jan 1, Amortization & Amortization & Balance Dec 31,
2002 Impairment Impairment 2009
2002 to 2008 2009
Inventory $5,000 $5,000
Building & $10,000 $7,000 $1,000 $2,000
Equipment
Goodwill $10,000 $5,000 $714 $4,286
$25,000 $17,000 $1,714 $6,286

D)
Calculation of Unrealized Profit
Particulars Before Tax Tax After Tax
Opening Inventory: $3,333 $1,333 $2,000
Upstream
(10,000*50/150)
Closing Inventory $667 $267 $400
(2,000*50/150)
Equipment: $1,000 $400 $600
downstream (5,000-
4,000)

Deferred tax: $267+$400 = $667

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F)
Calculation of consolidated Income and NCI share
Particulars Amount
Profit of page $63,000
Less: Gain on equipment after tax $600
$62,400 (a)
Profit of Sage $15,000
Less: Unrealized profit after tax $400
Less: Impairment & Amortization $1,714
Add: Realized profit after tax $2,000
$14,866 (B)
Adjusted profit (A+B) $77,286

Profit of Non-Controlling Interest: 30% of $14,886 = $4,466

G)
Calculations of Retained Earnings (Beginning)
Particulars Amount
Retained earnings of page $67,000 (a)

Retained earnings of sage $45,000

Retained earnings @ acquisition $20,000
Increase $25,000
Less: Unrealized gain after tax $2,000
Less: Gain on equipment $600
Less: Cumulative amortization $18,714
Net Increase $3,686
70% $2,580 (b)
A+B $69,580

H)
Calculation of end of 2009 NCI-B/S
Particulars Amount
Share of sage $20,000
Retained earnings of sage $60,000
Add: Unamortized balance of acquisition $6,286
differential
Less: Unrealized gain after tax $400
$85,886

NCI Share : $25,766

ACCT4201_

Calculation of closing retained earnings

Particulars Amount
Retained earnings of page $130,000
Less: Unrealized gain on equipment $600
$129,400 (a)
Retained earnings of sage $60,000
Retained earnings at acquisition $20,000
Increase $40,000
Less: Impairment $18,714
Less: Unrealized gain on ending inventory $400
Adjusted increase $20,886 (b)
Page’s Share (70% of $20,886) $14,620 (C)
Closing Retained earnings (A+C) $144,020

Part 2:

Page’s Consolidated Statement of Income

Year Ended December 31, 2009
Particulars Amount
Sales (650,000+225,000-10,000 (d)) $865,000
Cost of good sold (300,000+112,500-500 403,000
(e)-10,000(d)+1,000 (f)
462,000
Less: Depreciation expense 26,900
(14,000+12000+1,000(a)-100 (k)
Other expenses (231,000+75,500) 306,500
Goodwill Impairment loss 714
Income tax expense 51,840
(42,000+10,000+200(e)-400(f)+40(k)
Net Income $76,046

Attribute to:

Equity holders $72,150

Non- controlling interest 3,896
Consolidated Net income $76,046
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PAGE COMPANY
Consolidated Balance Sheet
At December 31, 2009
Assets Amount
Cash (29,500+10,000) 39,500
Accounts Receivable (net) (60,000+20,000- 79,500
500)
Inventory (45,000+30,000-1,000) 74,000
Building & Equipment 199,000
(90,000+100,000+10,000-1,000)
Accumulated depreciation (77,700)
(20,000+50,000+8,000-300)
Deferred income tax (400+280) 680
Goodwill 4,286
Total Assets $319,266

Liabilities
Current liabilities (40,000+25,000-500) 64,500
Deferred Income tax (10,000+5,000) 15,000
Retained earnings 144,020
Ordinary shares 70,000
Non- Controlling interest 25,766
Total Liabilities & shareholders’ equity $319,286