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ACCT $434|$ Fall $2023$

Instructions:

$$ This assignment is due by DECEMBER $3,2023$

$$ The assignment must be done in groups of $4$ or $5$ using Excel or a similar worksheet program.

$$ Each group must submit a single Excel file to D$2$L with formulas for calculations performed clearly traceable.

On December $31,2023,$ Pan Inc. purchased $75\%$ of the $400,000$ ordinary shares of Sand Corp. for $$960,000.$ The fair values were equal to carrying values for all its net assets except for

$$ Inventory, which had a fair value that was $$16,000$ more than the carrying value

$$ Accounts receivable, which had a fair value of $$12,000$ less than their book value

$$ Equipment, whose fair value was $$42,000$ less than the net book value. As of December $31,2023,$ Sand Corp.$$s equipment had a remaining useful life of $6$ years.

$$ Long term liabilities whose fair value was $$36,000$ less than book value. As of December $31,2023,$ these liabilities had $8$ years remaining to maturity.

$$ An unrecorded patent, valued at $$45,000.$ As of December $31,2023,$ the patent had a remaining legal life of $7$ years, and an estimated useful life of $5$ years.

The statements of financial position for Pan Inc. and Sand Corp. at December $31,2023$ were as follows:

Statements of Financial Position

December $31,2023$

Pan Inc.

Sand Corp.

Cash

$ $400,000$

$ $200,000$

Accounts and other receivables

$520,000$

$300,000$

Inventory

$420,000$

$300,000$

PP&E $$ net

$2,300,000$

$1,200,000$

Investment in Sand Corp.

$960,000$

$$

Total assets

$ $4,600,000$

$ $2,000,000$

Current liabilities

$ $640,000$

$ $150,000$

Long term liabilities

$1,200,000$

$900,000$

Ordinary shares

$1,000,000$

$400,000$

Retained earnings

$1,760,000$

$550,000$

Total

$ $4,600,000$

$ $2,000,000$

Pan Inc. uses the fair value enterprise method to value the non$-$controlling interest. Sand$$s common shares were trading at $$3\mathrm{.}00$ per share on January $1,2024.$

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Additional information

$1)$ Each year, goodwill is evaluated to determine if there has been a permanent impairment. Goodwill impairment losses were $$40,000$ and $$60,000$ in $2025$ and $2027,$ respectively.

$2)$ On January $1,2025,$ Sand Corp. sold a building to Pan Inc. and recognized a gain on sale of $$120,000.$ This building had an estimated useful life of $12$ years at the date of the intercompany sale.

$3)$ On July $1,2026,$ Sand Corp. purchased equipment from Pan Inc. for $$150,000.$ Pan Inc. recognized a loss on sale of $$50,000.$ The equipment had an estimated useful life of $5$ years at the date of the intercompany sale.

$4)$ On December $31,2026,$ the inventory of Sand Corp. contained $$100,000$ of merchandise purchased from Pan Inc. During $2027,$ Pan Inc. sold merchandise to Sand Corp. for $$500,000.$ Of this merchandise, $40\%$ remains in Sand$$s December $31,2027$ inventory. Pan Inc. records a gross profit margin of $35\%$ of the selling price on intercompany sales.

$5)$ On June $1,2027,$ Pan Inc. lent $$100,000$ to Sand Corp against a $9\%,3$ year note with interest payable every note anniversary date.

$6)$ On December $15,2027,$ Sand Corp. declared and paid $$80,000$ in total dividends for the current year. Pan Corp. declared $$100,000$ in dividends to its shareholders. This amount has not been paid at the year$-$end and is included in current liabilities.

$7)$ On July $1,2026,$ Pan Inc. sold a parcel of land to Sand Corp. for $$200,000.$ This land had a carrying value of $$100,000$ on Pan Inc.$$s books. In $2027,$ Sand Corp. sold $($a quarter$)$ of this land for $$100,000.$

$8)$ Pan Limited charged Sand Corp. management fees of $$15,000$ per month from August to December $2027.$ Sand Corp has included the management fees paid in Selling and Administrative expenses.

$9)$ Both companies pay income taxes at the same rate.

The financial statements for Pan and Sand for the financial year ended December $31,2027$ are as follows:

Statements of Profit or Loss

year ended December $31,2027$

Pan Inc.

Sand Corp.

Sales

$ $1,760,000$

$ $1,000,000$

Interest and other income

$220,000$

$160,000$

Total revenues and gains

$ $1,980,000$

$ $1,160,000$

Cost of goods sold

$996,000$

$510,000$

Selling and administrative

$380,000$

$250,000$

Depreciation

$180,000$

$100,000$

Interest and other

$24,000$

$60,000$

$3$

Total expenses

$1,580,000$

$920,000$

Income before tax

$400,000$

$240,000$

Income tax expense

$120,000$

$72,000$

Net income

$$280,000$

$$168,000$

Statements of Financial Position

December $31,2027$

Pan Inc.

Sand Corp.

Cash

$$325,000$

$$242,000$

Accounts and other receivables

$415,000$

$368,000$

Inventory

$340,000$

$380,000$

PP&E $$ net

$1,960,000$

$1,260,000$

Investment in Sand Corp.

$960,000$

$$

Total assets

$$4,000,000$

$$2,250,000$

Current liabilities

$$368,000$

$$150,000$

Long term liabilities

$425,000$

$960,000$

Ordinary shares

$1,000,000$

$400,000$

Retained earnings

$2,207,000$

$740,000$

Total

$$4,000,000$

$$2,250,000$

REQUIRED:

a$)$ Prepare Pan Inc.$$s consolidated statement of financial position dated, December $31,2023.$