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ASSIGNMENT 5 Question 1 ( 2 5 marks ) On December 3 1 , 2 0 1 3 , Poplar Inc. purchased 8 0 %
ASSIGNMENT Question marks On December Poplar Inc. purchased of the outstanding common shares of Spruce Ltd for $ million in cash. On that date, the shareholders' equity of Spruce totalled $ million and consisted of $ million in common shares, $ million in contributed surplus and $ million in retained earnings. On December Spruce had a plot of land with a fair value that was $ greater than its carrying value, equipment with a remaining life of years with a fair value that was $ greater than its carrying value and longterm debt maturing on December with a fair value that was $ greater than its book value. Any remaining purchase discrepancy was allocated to goodwill which was assessed annually for impairment. For the year ended December the condensed income statements for the two companies were as follows: Total assets Other information: Poplar values the noncontrolling interest in its subsidiary based on the market value of the subsidiary's shares immediately following the acquisition. When the markets opened on January shares of Spruce were trading for $ per share. Impairment of the controlling interest in the subsidiary's goodwill was $ in and $ in Impairment of the noncontrolling interest in goodwill was $ in and $ in There was no goodwill impairment recognized in any other year. On July Spruce sold the land to which the purchase discrepancy related to an unrelated company, recording a profit of $ before income taxes from the sale. On January Spruce sold a machine to Poplar for $ When Spruce purchased the machine on January for $ it was estimated that its service life would be ten years with no salvage value. There was no change in the estimated service life or salvage value at the time of the intercompany sale. During Poplar sold merchandise to Spruce for $ a price that included a gross profit of $ During half of this merchandise was resold by Spruce and the other half remained in its December inventories. On December the inventories of Spruce contained merchandise purchased from Poplar on which Poplar had recorded a gross profit of $ On December Spruce owed Poplar $At the end of Spruce owed Poplar $ During Poplar declared and paid dividends of $ and Spruce declared and paid dividends of $ Poplar accounts for its investment using the cost method. Both companies pay income tax at a marginal rate of In preparing its consolidated financial statements, Poplar accounts fully for the future income taxes arising from intercompany transactions but does not account for income taxes in its allocation of the purchase discrepancy. Required: a Calculate the consolidated net income of Poplar Inc. and its subsidiary Spruce Ltd for the year ended December b Prepare the condensed consolidated balance sheet of Poplar Inc. and its subsidiary Spruce Ltd as at December Show your calculations of consolidated retained earnings and noncontrolling interest.
ASSIGNMENT
Question marks
On December Poplar Inc. purchased of the outstanding common shares of Spruce Ltd for
$ million in cash. On that date, the shareholders' equity of Spruce totalled $ million and consisted of $ million
in common shares, $ million in contributed surplus and $ million in retained earnings. On December
Spruce had a plot of land with a fair value that was $ greater than its carrying value, equipment with a
remaining life of years with a fair value that was $ greater than its carrying value and longterm debt
maturing on December with a fair value that was $ greater than its book value. Any remaining
purchase discrepancy was allocated to goodwill which was assessed annually for impairment.
For the year ended December the condensed income statements for the two companies were as follows:
Total assets
Other information:
Poplar values the noncontrolling interest in its subsidiary based on the market value of the subsidiary's shares
immediately following the acquisition. When the markets opened on January shares of Spruce were
trading for $ per share.
Impairment of the controlling interest in the subsidiary's goodwill was $ in and $ in
Impairment of the noncontrolling interest in goodwill was $ in and $ in There was no
goodwill impairment recognized in any other year.
On July Spruce sold the land to which the purchase discrepancy related to an unrelated company,
recording a profit of $ before income taxes from the sale.
On January Spruce sold a machine to Poplar for $ When Spruce purchased the machine on
January for $ it was estimated that its service life would be ten years with no salvage value.
There was no change in the estimated service life or salvage value at the time of the intercompany sale.
During Poplar sold merchandise to Spruce for $ a price that included a gross profit of $
During half of this merchandise was resold by Spruce and the other half remained in its December
inventories. On December the inventories of Spruce contained merchandise purchased from
Poplar on which Poplar had recorded a gross profit of $
On December Spruce owed Poplar $At the end of Spruce owed Poplar $
During Poplar declared and paid dividends of $ and Spruce declared and paid dividends of
$
Poplar accounts for its investment using the cost method.
Both companies pay income tax at a marginal rate of In preparing its consolidated financial statements,
Poplar accounts fully for the future income taxes arising from intercompany transactions but does not account
for income taxes in its allocation of the purchase discrepancy.
Required:
a Calculate the consolidated net income of Poplar Inc. and its subsidiary Spruce Ltd for the year ended
December
b Prepare the condensed consolidated balance sheet of Poplar Inc. and its subsidiary Spruce Ltd as at
December Show your calculations of consolidated retained earnings and noncontrolling interest.
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