1)

The Project Data file provided for you contains information that you may use to help you complete certain questions. You will be directed to this file as required in the questions below. Canaans Curios Corp. Canaans Curios Corp. (CCC) is a company located in Western Canada that reports its financial results in accordance with IFRS. On December 31, 20X6, CCC acquired common shares of Tymen Jungle Inc. (TJI). Four independent questions based on different quantities of shares acquired, but using the same financial results for TJI, are set out below.

TJIs financial statements together with additional pertinent information follow:

Intercompany transactions:

CCC provided management services to TJI during the entire year. TJI paid $4,500 per month for this service. At December 31, 20X7, the amount owing for the services provided in December 20X7 remained unpaid.

TJI rented a building to CCC for $7,000 per month. CCC rented the building for the entire year. At December 31, 20X7, CCC owed TJI $14,000 for November and Decembers rent.

Land sale:

On December 31, 20X7, CCC sold land to TJI for $150,000. CCCs net book value at time of sale was $100,000, which was the same as the estimated fair value at the acquisition date of the shares of TJI (December 31, 20X6). In consideration of the transfer, TJI paid $100,000 cash and signed a note payable to CCC for the $50,000 balance. The note is payable in full on December 31, 20X8. Interest at 5% per annum, which is the market rate of interest for an obligation of this nature, is first payable on December 31, 20X8.

Inventory sales:

During 20X7, CCC sold $125,000 of inventory to TJI. CCCs cost of the inventory was $95,000. 25% of these goods remained unsold by TJI as at December 31, 20X7.

During 20X7, TJI sold goods that it had purchased for $150,000 to CCC for $210,000; 35% of these goods remained unsold by CCC as at December 31, 20X7.

Equipment sale:

On January 1, 20X7, TJI sold equipment to CCC for $70,000 cash. TJIs carrying value of the equipment, which had a remaining useful life of five years, was $44,000.

Additional information:

1. Both companies pay income tax at a rate of 30%.

2. Both companies use the first in, first out (FIFO) cost-flow assumption to value their inventories.

3. Both companies depreciate their depreciable assets on a straight-line basis.

4. The fair value increment on the bonds is amortized using the straight-line method.

5. Both companies account for share-issuance costs using the retained earnings method.1

6. For impairment-testing purposes, CCC established that TJI is a cash-generating unit (CGU).

7. CCC and TJI only prepare accruals and other adjusting entries at year end.

Question 1

Required:

In worksheet Q1(a) JEs and calcs

a) Prepare journal entries to record CCCs acquisition of TJI and all events during 20X7 that affect CCCs Investment in TJI account. Ensure that you provide support for your calculations. Also remember to provide a brief explanation for each journal entry as to its nature. (7 marks)

In worksheet Q1(b) JEs and calcs

b) Independent of part (a), assume that on December 31, 20X9, the balance of CCCs Investment in TJI account was $140,000. All the results of TJIs activities during 20X9 are included in this amount. At the end of 20X9, CCC owned 25% of the common shares of TJI.

Two independent scenarios follow. In each one, the amount paid or received represents the fair market value of the ownership stake purchased or sold. Remember to support the journal entries with a brief explanation as to their nature.

i) On December 31, 20X9, CCC purchased an additional 20% of the outstanding common shares of TJI for $130,000 cash. Based on this purchase, calculate what impact this transaction had on CCCs ownership and prepare the journal entries that CCC would record for this transaction. (1 mark)

ii) On December 31, 20X9, CCC purchased an additional 30% of the outstanding common shares of TJI for $195,000 cash. Based on this purchase, calculate what impact this transaction had on CCCs ownership and prepare the journal entries that CCC would record for this transaction. (2 marks)

Question 2 (5 marks)

Assume that when CCC acquired an interest in TJI on December 31, 20X6, CCC paid $600,000 cash to acquire 100% of the net assets of TJI. Required: In worksheet Q2 AD schedule a) Calculate and allocate the acquisition differential on the date of acquisition, including determination of goodwill. (2 marks) b) Prepare CCCs journal entry to record the acquisition. Remember to provide a brief explanation for each journal entry. (3 marks)

Question 3

Assume that when CCC acquired an interest in TJI on December 31, 20X6, CCC issued 100,000 of its common shares to acquire 100% of the common shares of TJI. On this date, CCCs common shares were being actively traded at $6.

In order to facilitate the acquisition, CCC paid $29,000 cash for direct costs of acquisition. CCC also paid $17,000 cash for the cost of issuing the additional shares.

CCCs draft non-consolidated statement of financial position as at December 31, 20X6, follows. This statement was prepared after all CCCs year-end adjustments had been processed but does not include the investment that was made in TJI on December 31, 20X6.

Required:

In worksheet Q3 Consol. SFP 20X6 Prepare CCCs consolidated statement of financial position at the December 31, 20X6, acquisition date. (Refer back to the acquisition differential allocation schedule that you prepared in Question 2, but complete your work in Worksheet Q3.) Provide a brief explanation of all adjustments made to arrive at the consolidated SFP figures. For sake of clarity, these are the adjustments made while preparing the consolidated SFP, rather than adjusting journal entries.

Note: From the Project Data file, copy and paste the template in the worksheet titled Q3 Consolidated SFP 20X6 into your project submission file. Do not show your work in the Project Data file.

Question 4 (21 marks)

Assume that when CCC acquired an interest in TJI on December 31, 20Xs6, CCC paid $350,000 cash to acquire 60% of TJIs outstanding common shares. CCC tested the CGU for impairment on December 31, 20X7, and goodwill was found to be impaired by $31,000.

CCCs draft non-consolidated financial statements for the December 31, 20X7, year end are set out below:

Required: In worksheet Q4 AD schedules

a) Assume that CCC uses the identifiable net assets (INA) method to value the noncontrolling interest (NCI). Use the acquisition method to allocate the acquisition differential and determine goodwill arising on acquisition. (2 marks)

b) Assume that CCC uses the fair value enterprise (FVE) method to value the NCI. Use the acquisition method to allocate the acquisition differential and determine goodwill arising on acquisition. (2 marks)

c) Based on the solution to part (a) (where CCC uses the INA method to value the NCI), prepare an acquisition differential and impairment schedule for 20X7. Provide references for each line in the AD schedule that will be used to reference through to the consolidated financial statements. (2 marks)

In worksheet Q4 Interco transactions

d) Prepare a list of all intercompany transactions and balances that are pertinent to the case facts and should be eliminated upon consolidation. Hint: There are eight intercompany transactions that should be eliminated, seven of which have two applicable parts (for example, note receivableote payable = one intercompany transaction). (0.5 marks)

e) Calculate all unrealized and realized intercompany profits. (2.5 marks) Provide references for each line in both the schedule of intercompany transactions and the schedule of unrealized/realized intercompany profits that will be used to reference through to the consolidated financial statements. Include a calculation of the total deferred tax asset/liability. Indicate whether the calculated figure is an asset or a liability.

In worksheet Q4 Consol. SCI & RE For parts (f) and (g), assume that CCC uses the INA method to value the NCI. Calculations done in earlier sections of Q4 do not need to be redone on these worksheets.

f) Prepare CCCs consolidated statement of comprehensive income for the year ended December 31, 20X7. Show the allocation between the parent and NCI. Include references to your supporting calculations, which should be the references in the supporting schedules prepared in parts (a) through

(e) of Question 4. (6 marks)

Note: From the Project Data file, copy and paste the template in the worksheet titled Q4 Consolidated SCI 20X7 into your project submission. Do not show your work in the Project Data file.

Prepare CCCs consolidated statement of retained earnings for the year ended December 31, 20X7.

(1 mark) In worksheet Q4 Consol. SFP & NCI

g) Calculate the NCI on the statement of financial position as at December 31, 20X7. (1 mark) Prepare CCCs consolidated statement of financial position as at December 31, 20X7. Include references to your supporting calculations, which will typically be the references in the supporting schedules prepared in parts (a) through (h) of Question 4. (4 marks)

Note: From the Project Data file, copy and paste the template in the worksheet titled Q4 Consolidated SFP 20X7 into your project submission file. Do not show your work in the Project Data file.

Tymen Jungle Inc. Statement of financial position As at December 31 (in '000s) Carrying value Fair value Remaining useful life/term to maturity 20X6 Cash Accounts receivable Inventory Land Building (net) Equipment (net) Patent Total assets 20X7 $ 68 75 74 325 285 232 30 $1,089 20X6 $ 35 48 62 175 300 400 $ 68 164 345 380 142 N/A N/A 15 years 5 years 16 years 30 $1,050 Accounts payable $ 52 Notes payable 50 Long-term debt 300 Bonds payable 250 Common shares 180 Retained earnings 257 Total liabilities and equity $1,089 $ 37 0 400 250 180 183 $1,050 262 6 years Tymen Jungle Inc. Statement of comprehensive income For the year ended December 31, 20X7 (in '000s) Sales revenue Cost of goods sold Gross profit Sales, general, and administrative expenses Interest expense Depreciation and amortization expense $ 885 440 445 361 27 25 32 135 167 33 $ 134 Other income Earnings before income tax expense Income tax expense Net income Canaan's Curios Corp. Draft statement of financial position As at December 31, 20X6 (in '000s) Cash Accounts receivable Inventory Land Building (net) Equipment (net) Patent Total assets 20X6 $ 861 698 128 550 850 1,250 450 $4.787 Accounts payable Long-term debt Bonds payable Common shares Retained earnings Total liabilities and equity $ 65 1,500 500 830 1.892 $4,787 Canaan's Curios Corp. Draft statement of financial position As at December 31 (in '000s) 20X7 $ 481 588 190 60 Cash Accounts receivable Inventory Notes receivable Land Building (net) Equipment (net) Patent Investment Total assets 450 803 1,000 450 350 $4,372 20X6 $ 511 698 128 0 550 850 1,250 450 350 $4,787 Accounts payable Notes payable Long-term debt Bonds payable Common shares Retained earnings Total liabilities and equity $ 72 0 1,310 500 830 1.660 $4.372 $ 65 0 1,500 500 830 1.892 $4,787 Canaan's Curios Corp. Draft statement of comprehensive income For the year ended December 31, 20X7 (in '000s) Sales revenue Cost of goods sold Gross profit Sales, general, and administrative expenses Interest expense Depreciation and amortization expense $3,500 1.969 1,531 1,042 248 77 164 170 334 66 $ 268 Other income Earnings before income tax expense Income tax expense Net income Tymen Jungle Inc. Statement of financial position As at December 31 (in '000s) Carrying value Fair value Remaining useful life/term to maturity 20X6 Cash Accounts receivable Inventory Land Building (net) Equipment (net) Patent Total assets 20X7 $ 68 75 74 325 285 232 30 $1,089 20X6 $ 35 48 62 175 300 400 $ 68 164 345 380 142 N/A N/A 15 years 5 years 16 years 30 $1,050 Accounts payable $ 52 Notes payable 50 Long-term debt 300 Bonds payable 250 Common shares 180 Retained earnings 257 Total liabilities and equity $1,089 $ 37 0 400 250 180 183 $1,050 262 6 years Tymen Jungle Inc. Statement of comprehensive income For the year ended December 31, 20X7 (in '000s) Sales revenue Cost of goods sold Gross profit Sales, general, and administrative expenses Interest expense Depreciation and amortization expense $ 885 440 445 361 27 25 32 135 167 33 $ 134 Other income Earnings before income tax expense Income tax expense Net income Canaan's Curios Corp. Draft statement of financial position As at December 31, 20X6 (in '000s) Cash Accounts receivable Inventory Land Building (net) Equipment (net) Patent Total assets 20X6 $ 861 698 128 550 850 1,250 450 $4.787 Accounts payable Long-term debt Bonds payable Common shares Retained earnings Total liabilities and equity $ 65 1,500 500 830 1.892 $4,787 Canaan's Curios Corp. Draft statement of financial position As at December 31 (in '000s) 20X7 $ 481 588 190 60 Cash Accounts receivable Inventory Notes receivable Land Building (net) Equipment (net) Patent Investment Total assets 450 803 1,000 450 350 $4,372 20X6 $ 511 698 128 0 550 850 1,250 450 350 $4,787 Accounts payable Notes payable Long-term debt Bonds payable Common shares Retained earnings Total liabilities and equity $ 72 0 1,310 500 830 1.660 $4.372 $ 65 0 1,500 500 830 1.892 $4,787 Canaan's Curios Corp. Draft statement of comprehensive income For the year ended December 31, 20X7 (in '000s) Sales revenue Cost of goods sold Gross profit Sales, general, and administrative expenses Interest expense Depreciation and amortization expense $3,500 1.969 1,531 1,042 248 77 164 170 334 66 $ 268 Other income Earnings before income tax expense Income tax expense Net income