Assignment 3 This assignment should be completed after the end of Chapter 12 and contributes 10% towards your final grade. Remember to show all your work as partial marks may be awarded. Problem 1 (30 marks) At the beginning of 20X2, Dahl Ltd. acquired 8% of the outstanding common shares of Tippy Ltd. for $400,000. This amounted to 80,000 shares. At the beginning of 20X4, Dahl acquired an additional 270,000 shares of Tippy for $1,512,000. At this acquisition date, Tippy?s shareholders? equity consisted of the following: 4% non-cumulative preferred shares $1,000,000 Common shares, 1,000,000 outstanding shares 2,400,000 Retained earnings 2,160,000 At this acquisition date, the fair values of the net identifiable assets equalled their carrying values except for the following: Excess of fair value over carrying value Inventory $ 96,000 Land 800,000 At the beginning of 20X5, Dahl acquired an additional 450,000 shares of Tippy for 2,880,000. The shares were trading for $6 per share. At this acquisition date, Tippy?s shareholders? equity consisted of the following: 4% non-cumulative preferred shares $1,000,000 Common shares, 1,000,000 outstanding shares 2,400,000 Retained earnings 2,560,000 At this acquisition date, the fair values of the net identifiable assets equalled their carrying values except for the following: Excess of fair value over/(under) carrying value Accounts receivable $W(48,000) Building and equipment (net) 720,000 Long-term debt 160,000 The building and equipment have an estimated remaining life of 10 years and the long-term debt matures in 10 years. The condensed separate-entity financial statements for December 31, 20X6 are as follows: Balance Sheets As at December 31, 20X6 Dahl Ltd. Tippy Ltd. Assets: Cash $ 400,000 $ 560,000 Accounts receivable 1,920,000 440,000 Inventories 400,000 320,000 Land 4,400,000 800,000 Buildings and equipment (net) 8,488,000 7,200,000 Investment in Tippy (at cost) 4,792,000 ____-____ Total assets $ 20,400,000 $ 9,320,000 Liabilities: Accounts payable $ 2,400,000 $ 400,000 Long-term debt 3,200,000 1,600,000 Total liabilities 5,600,000 2,000,000 Shareholders? equity: 4% non-cumulative preferred shares - 1,000,000 Common shares 7,200,000 2,400,000 Retained earnings 7,600,000 3,920,000 Total shareholders? equity 14,800,000 7,320,000 Total liabilities and shareholders? equity $ 20,400,000 $ 9,320,000 Income Statements Year Ended December 31, 20X6 Dahl Ltd. Tippy Ltd. Sales $ 12,000,000 $ 7,200,000 Dividend income 96,000 - Gain on sale of equipment _______ 168,000 Total revenue 12,096,000 7,368,000 Cost of goods sold 7,600,000 4,960,000 Operating expenses 2,374,400 944,000 Income tax expense 825,600 584,000 Total expenses 10,800,000 6,488,000 Net income $ 1,296,000 $ 880,000 Additional information: ? Dahl and Tippy declared and paid dividends during 20X6 of $400,000 and $160,000, respectively. ? At the end of 20X5, the inventories of Dahl and Tippy included goods with intercompany profits of $68,000 and $152,000 respectively. ? During 20X6, Dahl sold goods to Tippy for $3,120,000 at a gross margin of 45%. At the end of 20X6, $200,000 of these goods were still in Tippy?s inventory. ? During 20X6, Tippy sold goods to Dahl for $2,080,000 at a gross margin of 35%. At the end of the year, $320,000 of these goods were still in Dahl?s inventory. ? On January 1, 20X6, Tippy sold some equipment to Dahl for $360,000. At that time, the equipment had a book value of $192,000 and an estimated remaining life of 8 years. Dahl has paid Tippy $252,000 and will pay the balance on January 31, 20X7. ? Both Dahl and Tippy use the straight-line method of amortization for their buildings and equipment. ? In 20X5, a goodwill impairment of $73,600 was recognized and a further impairment of $46,400 occurred in 20X6. Impairment losses are allocated 80% to Dahl and 20% to the non-controlling interest. ? Both companies are taxed at an average rate of 40%. Required: Calculate Dahl?s 20X6 consolidated net income and identify the amount attributable to Dahl?s shareholders and to the non-controlling interest. Be sure to show all your calculations. You are not required to prepare a consolidated income statement. Problem 2 (10 marks) Income Statements Year Ended December 31, 20X8 Insure Co. Go-med Co. Sales $3,900,000 $1,560,000 Other income 260,000 91,000 Gain on sale of land ___-___ 130,000 4,160,000 1,781,000 Cost of sales 1,820,000 728,000 Operating expenses 780,000 559,000 Income tax 520,000 195,000 3,120,000 1,482,000 Net income $1,040,000 $ 299,000 Insure acquired 40% of the common shares of Go-med in 20X2 for $1,072,500. For 20X8, Insure amortized its acquisition differential as follows: Buildings $ 11,700 Long-term liabilities (16,250) Goodwill impairment loss 16,900 $ 12,350 During 20X8, Go-med paid royalties of $162,500 to Insure, which Insure included in its other income. During 20X8, Go-med sold land to a third party. It had acquired the land 3 years ago from Insure. At that time, Insure had recorded a profit on the sale of $29,250. During 20X8, Go-med declared and paid dividends of $104,000. Both Insure and Go-med pay taxes at an average rate of 40%. Required: Assume that Go-med is a joint venture owned by Insure and four other venturers, that the acquisition differentials are valid, and that it has not yet adopted IFRS 11: Joint Arrangements. Prepare a 20X8 consolidated income statement for Insure using proportionate consolidation. Problem 3 (20 marks) On April 1 of the current year, Econ Ltd. ordered maps from a foreign supplier for 500,000 units of foreign currency (FC). On April 2, Econ entered a forward contract as a cash flow hedge to acquire 500,000 FC on July 31 for $0.31. On July 31, the maps arrived and Econ paid the supplier in full and settled the forward contract. Econ has an April 30 year-end. Spot Rate Forward Rate April 1 and 2 FC 1 = $0.280 FC 1 = $0.310 April 30 FC 1 = $0.270 FC 1 = $0.305 July 31 FC 1 = $0.320 FC 1 = $0.320 Required: a) Prepare dated journal entries to record the transactions shown above. (10 marks) b) Assume that Econ did not enter into a forward contract. Prepare dated journal entries to record the transactions above. (2 marks) c) Assume that Econ had entered into a forward contract that was designated a fair value hedge. Prepare dated journal entries to record the transactions above. (8 marks) Problem 4 (34 marks) Golden Bells Inc. is a foreign subsidiary of Northern Bells Ltd., a Canadian company. Northern Bells had purchased 90% of the outstanding shares of Golden Bells at the beginning of 20X9 for 20,160 foreign currency (FC) units. At the acquisition date, Golden Bells? balance sheet in FC units is as follows: DR CR Current monetary assets 14,000 Inventory 11,200 Equipment (net) 28,000 Current liabilities 12,600 Long term debt 22,400 Common shares 14,000 Retained earnings ______ 4,200 53,200 53,200 ? At the acquisition date, the only acquisition differential was in regard to the equipment, which had a fair value of 30,800 FC and an estimated remaining useful life of 10 years. The relevant exchange rates for 20X9 are as follows: January 1 FC 1 = $1.10 September 15 FC 1 = $1.20 December 31 FC 1 = $1.25 Average rate for 20X9 FC 1 = $1.18 Balance Sheets December 31, 20X9 Northern Bells Ltd. $ Golden Bells Inc. FC Assets: Current monetary assets 44,173 23,800 Inventory 42,000 15,400 Investment in Golden Bells 22,176 - Equipment (net) 84,000 25,200 Total assets 192,349 64,400 Liabilities: Current monetary liabilities 36,400 16,800 Long-term debt 56,000 22,400 Total liabilities 92,400 39,200 Shareholders? equity: Common shares 42,000 14,000 Retained earnings 57,949 11,200 Total shareholders? equity 99,949 25,200 Total liabilities and shareholders? equity 192,349 64,400 Income Statements Year Ended December 31, 20X9 Northern Bells Ltd. $ Golden Bells Inc. FC Sales 503,849 140,000 Dividend income 6,300 ____-___ Total revenue 510,149 140,000 Cost of goods sold 252,000 82,600 Operating expenses 217,000 44,800 Total expenses 469,000 127,400 Net income 41,149 12,600 At the end of 20X9, Northern Bells and Golden Bells declared dividends of $30,800 and 5,600 FC, respectively. Golden Bells? goods in inventory at the end of 20X9 were from a special purchase made September 15, 20X9. Golden Bells had a goodwill impairment loss of 140 FC that occurred evenly throughout 20X9. Northern Bell uses the entity theory method to consolidate its subsidiary. Required: Prepare Northern Bell?s consolidated financial statements for December 31, 20X9, assuming that Golden Bell?s functional currency is a) the Canadian dollar, and (18 marks) b) the foreign currency unit. (16 marks) Problem 5 (6 marks) Wise Owls, an NFPO, began operations at the beginning of 20X1 to provide free tutoring and homework assistance, as well as a nutrition program, to low-income immigrant children. The local school board has provided Wise Owls with the use of a wing of a school at a heavily discounted rate of $1,000 per month. During 20X1, Wise Owls rented the wing for the full year and plans to continue to do so until it can construct its own building. Wise Owls is funded primarily by donations. This year?s fundraiser was very successful and exceeded expectations. In addition to the net proceeds of $350,000 from the fundraising event, another $50,000 was pledged by attendees, but most of these pledges have not yet been collected. They will probably be collected early next year. Of the $50,000 pledged, $10,000 was pledged for the purchase of land, and Wise Owls received it a few days after its year-end. Of the $350,000 raised, $40,000 was designated for the purchase of a tract of land on which the organizationplansto erect a building for its programs. Wise Owls still needs to raise another $10,000 before the land can be purchased. If everything goes according to plan, it will be able to purchase the land for $60,000 within the first six months of 20X2. Wise Owls is especially happy with its fundraiser because the government has committed to provide matching funds, to a maximum of $250,000, of the net proceeds raised for operations. It received a letter from the government two weeks after year-end advising it that its application had been approved and that it can expect the grant in six weeks. Wise Owls has had good support from the local community. Four grocery stores in the area provided donations totaling $25,000 of food for Wise Owls? nutrition program. An office supply store provided $2,500 of school supplies and a card for $5,000 of photocopying services. All of the people working at Wise Owls are volunteers except for the full-time director and the part-time volunteer coordinator.During 20X1, the director was paid $70,000 and the coordinator was paid $26,000. $2,000 of the amount paid to the coordinator was an advance against her salary in January, 20X2. Normally, advances are not allowed; however, due to extenuating circumstances, the board allowed it. During 20X1, Wise Owls spent $53,000 on food, $10,000 on school supplies, and $90,000 on other operating expenses. Wise Owls will buy 40 laptop computers in the next year for use in several of its programs. The director has negotiated a deal with a supplier to get the computers for $20,000. The computers should be delivered in a month, with payment due on delivery. Required: Using the deferral method, prepare a statement of revenues and expenses and a statement of changes in net assets for Wise Owls for 20X1. (6 marks)

Assignment 3 This assignment should be completed after the end of Chapter 12 and contributes 10% towards your final grade. Remember to show all your work as partial marks may be awarded. Problem 1 (30 marks) At the beginning of 20X2, Dahl Ltd. acquired 8% of the outstanding common shares of Tippy Ltd. for $400,000. This amounted to 80,000 shares. At the beginning of 20X4, Dahl acquired an additional 270,000 shares of Tippy for $1,512,000. At this acquisition date, Tippy's shareholders' equity consisted of the following: 4% noncumulative preferred shares Common shares, 1,000,000 outstanding shares Retained earnings $1,000,000 2,400,000 2,160,000 At this acquisition date, the fair values of the net identifiable assets equalled their carrying values except for the following: Inventory Land Excess of fair value over carrying value $ 96,000 800,000 At the beginning of 20X5, Dahl acquired an additional 450,000 shares of Tippy for 2,880,000. The shares were trading for $6 per share. At this acquisition date, Tippy's shareholders' equity consisted of the following: 4% noncumulative preferred shares Common shares, 1,000,000 outstanding shares Retained earnings $1,000,000 2,400,000 2,560,000 At this acquisition date, the fair values of the net identifiable assets equalled their carrying values except for the following: Excess of fair value over/(under) carrying value Accounts receivable $W(48,000) Building and equipment (net) 720,000 Longterm debt 160,000 The building and equipment have an estimated remaining life of 10 years and the longterm debt matures in 10 years. ACCT451v10 Assignment 3Jan 25 2013 The condensed separateentity financial statements for December 31, 20X6 are as follows: Balance Sheets As at December 31, 20X6 Dahl Ltd. Assets: Cash Accounts receivable Inventories Land Buildings and equipment (net) Investment in Tippy (at cost) Total assets Liabilities: Accounts payable Longterm debt Total liabilities Shareholders' equity: 4% noncumulative preferred shares Common shares Retained earnings Total shareholders' equity Total liabilities and shareholders' equity Tippy Ltd. $ 400,000 1,920,000 400,000 4,400,000 8,488,000 4,792,000 $ 20,400,000 $ 560,000 440,000 320,000 800,000 7,200,000 ________ $ 9,320,000 $ 2,400,000 3,200,000 5,600,000 $ 400,000 1,600,000 2,000,000 7,200,000 7,600,000 14,800,000 $ 20,400,000 1,000,000 2,400,000 3,920,000 7,320,000 $ 9,320,000 Income Statements Year Ended December 31, 20X6 Sales Dividend income Gain on sale of equipment Total revenue Cost of goods sold Operating expenses Income tax expense Total expenses Net income ACCT451v10 Dahl Ltd. $ 12,000,000 96,000 _______ 12,096,000 7,600,000 2,374,400 825,600 10,800,000 $ 1,296,000 Tippy Ltd. $ 7,200,000 168,000 7,368,000 4,960,000 944,000 584,000 6,488,000 $ 880,000 Assignment 3Jan 25 2013 Additional information: Dahl and Tippy declared and paid dividends during 20X6 of $400,000 and $160,000, respectively. At the end of 20X5, the inventories of Dahl and Tippy included goods with intercompany profits of $68,000 and $152,000 respectively. During 20X6, Dahl sold goods to Tippy for $3,120,000 at a gross margin of 45%. At the end of 20X6, $200,000 of these goods were still in Tippy's inventory. During 20X6, Tippy sold goods to Dahl for $2,080,000 at a gross margin of 35%. At the end of the year, $320,000 of these goods were still in Dahl's inventory. On January 1, 20X6, Tippy sold some equipment to Dahl for $360,000. At that time, the equipment had a book value of $192,000 and an estimated remaining life of 8 years. Dahl has paid Tippy $252,000 and will pay the balance on January 31, 20X7. Both Dahl and Tippy use the straightline method of amortization for their buildings and equipment. In 20X5, a goodwill impairment of $73,600 was recognized and a further impairment of $46,400 occurred in 20X6. Impairment losses are allocated 80% to Dahl and 20% to the noncontrolling interest. Both companies are taxed at an average rate of 40%. Required: Calculate Dahl's 20X6 consolidated net income and identify the amount attributable to Dahl's shareholders and to the noncontrolling interest. Be sure to show all your calculations. You are not required to prepare a consolidated income statement. ACCT451v10 Assignment 3Jan 25 2013 Problem 2 (10 marks) Income Statements Year Ended December 31, 20X8 Sales Other income Gain on sale of land Cost of sales Operating expenses Income tax Net income Insure Co. $3,900,000 260,000 ______ 4,160,000 1,820,000 780,000 520,000 3,120,000 $1,040,000 Gomed Co. $1,560,000 91,000 130,000 1,781,000 728,000 559,000 195,000 1,482,000 $ 299,000 Insure acquired 40% of the common shares of Gomed in 20X2 for $1,072,500. For 20X8, Insure amortized its acquisition differential as follows: Buildings Longterm liabilities Goodwill impairment loss $ 11,700 (16,250) 16,900 $ 12,350 During 20X8, Gomed paid royalties of $162,500 to Insure, which Insure included in its other income. During 20X8, Gomed sold land to a third party. It had acquired the land 3 years ago from Insure. At that time, Insure had recorded a profit on the sale of $29,250. During 20X8, Gomed declared and paid dividends of $104,000. Both Insure and Gomed pay taxes at an average rate of 40%. Required: Assume that Gomed is a joint venture owned by Insure and four other venturers, that the acquisition differentials are valid, and that it has not yet adopted IFRS 11: Joint Arrangements. Prepare a 20X8 consolidated income statement for Insure using proportionate consolidation. ACCT451v10 Assignment 3Jan 25 2013 Problem 3 (20 marks) On April 1 of the current year, Econ Ltd. ordered maps from a foreign supplier for 500,000 units of foreign currency (FC). On April 2, Econ entered a forward contract as a cash flow hedge to acquire 500,000 FC on July 31 for $0.31. On July 31, the maps arrived and Econ paid the supplier in full and settled the forward contract. Econ has an April 30 yearend. April 1 and 2 April 30 July 31 Spot Rate FC 1 = $0.280 FC 1 = $0.270 FC 1 = $0.320 Forward Rate FC 1 = $0.310 FC 1 = $0.305 FC 1 = $0.320 Required: a) Prepare dated journal entries to record the transactions shown above. (10 marks) b) Assume that Econ did not enter into a forward contract. Prepare dated journal entries to record the transactions above. (2 marks) c) Assume that Econ had entered into a forward contract that was designated a fair value hedge. Prepare dated journal entries to record the transactions above. (8 marks) Problem 4 (34 marks) Golden Bells Inc. is a foreign subsidiary of Northern Bells Ltd., a Canadian company. Northern Bells had purchased 90% of the outstanding shares of Golden Bells at the beginning of 20X9 for 20,160 foreign currency (FC) units. At the acquisition date, Golden Bells' balance sheet in FC units is as follows: Current monetary assets Inventory Equipment (net) Current liabilities Long term debt Common shares Retained earnings ACCT451v10 DR 14,000 11,200 28,000 ______ 53,200 CR 12,600 22,400 14,000 4,200 53,200 Assignment 3Jan 25 2013 At the acquisition date, the only acquisition differential was in regard to the equipment, which had a fair value of 30,800 FC and an estimated remaining useful life of 10 years. The relevant exchange rates for 20X9 are as follows: January 1 September 15 December 31 Average rate for 20X9 FC 1 = $1.10 FC 1 = $1.20 FC 1 = $1.25 FC 1 = $1.18 Balance Sheets December 31, 20X9 Northern Bells Ltd. $ Assets: Current monetary assets Inventory Investment in Golden Bells Equipment (net) Total assets Golden Bells Inc. FC 44,173 42,000 22,176 84,000 192,349 Liabilities: Current monetary liabilities Longterm debt Total liabilities Shareholders' equity: Common shares Retained earnings Total shareholders' equity Total liabilities and shareholders' equity 23,800 15,400 25,200 64,400 36,400 56,000 92,400 16,800 22,400 39,200 42,000 57,949 99,949 192,349 14,000 11,200 25,200 64,400 Income Statements Year Ended December 31, 20X9 Sales Dividend income Total revenue Cost of goods sold Operating expenses Total expenses ACCT451v10 Northern Bells Ltd. $ 503,849 6,300 510,149 252,000 217,000 469,000 Golden Bells Inc. FC 140,000 _______ 140,000 82,600 44,800 127,400 Assignment 3Jan 25 2013 Net income 41,149 12,600 At the end of 20X9, Northern Bells and Golden Bells declared dividends of $30,800 and 5,600 FC, respectively. Golden Bells' goods in inventory at the end of 20X9 were from a special purchase made September 15, 20X9. Golden Bells had a goodwill impairment loss of 140 FC that occurred evenly throughout 20X9. Northern Bell uses the entity theory method to consolidate its subsidiary. Required: Prepare Northern Bell's consolidated financial statements for December 31, 20X9, assuming that Golden Bell's functional currency is a) the Canadian dollar, and (18 marks) b) the foreign currency unit. (16 marks) Problem 5 (6 marks) Wise Owls, an NFPO, began operations at the beginning of 20X1 to provide free tutoring and homework assistance, as well as a nutrition program, to lowincome immigrant children. The local school board has provided Wise Owls with the use of a wing of a school at a heavily discounted rate of $1,000 per month. During 20X1, Wise Owls rented the wing for the full year and plans to continue to do so until it can construct its own building. Wise Owls is funded primarily by donations. This year's fundraiser was very successful and exceeded expectations. In addition to the net proceeds of $350,000 from the fundraising event, another $50,000 was pledged by attendees, but most of these pledges have not yet been collected. They will probably be collected early next year. Of the $50,000 pledged, $10,000 was pledged for the purchase of land, and Wise Owls received it a few days after its yearend. Of the $350,000 raised, $40,000 was designated for the purchase of a tract of land on which the organizationplansto erect a building for its programs. Wise Owls still needs to raise another $10,000 before the land can be purchased. If everything goes according to plan, it will be able to purchase the land for $60,000 within the first six months of 20X2. Wise Owls is especially happy with its fundraiser because the government has committed to provide matching funds, to a maximum of $250,000, of the net proceeds raised for operations. It received a letter from the government two weeks after yearend advising it that its application had been approved and that it can expect the grant in six weeks. ACCT451v10 Assignment 3Jan 25 2013 Wise Owls has had good support from the local community. Four grocery stores in the area provided donations totaling $25,000 of food for Wise Owls' nutrition program. An office supply store provided $2,500 of school supplies and a card for $5,000 of photocopying services. All of the people working at Wise Owls are volunteers except for the fulltime director and the parttime volunteer coordinator.During 20X1, the director was paid $70,000 and the coordinator was paid $26,000. $2,000 of the amount paid to the coordinator was an advance against her salary in January, 20X2. Normally, advances are not allowed; however, due to extenuating circumstances, the board allowed it. During 20X1, Wise Owls spent $53,000 on food, $10,000 on school supplies, and $90,000 on other operating expenses. Wise Owls will buy 40 laptop computers in the next year for use in several of its programs. The director has negotiated a deal with a supplier to get the computers for $20,000. The computers should be delivered in a month, with payment due on delivery. Required: Using the deferral method, prepare a statement of revenues and expenses and a statement of changes in net assets for Wise Owls for 20X1. (6 marks) Wise Owls Statement of Revenu & Expenses for the year ended December 31, 2001 ACCT451v10 Assignment 3Jan 25 2013