Bright Pea Expansion Bright Pea (BP) was founded in Manitoba in 2001 by Nancy Rock. Over the years, BP has had significant growth and loyal following of customers. In the late 2000s, BP went through a major expansion, with Nancy adding a warehouse and retail space. In 2014, BP converted its financial statements to conform with IFRS. Although BP is a private company, Nancy felt that using IFRS would help her obtain global financing at a more competitive rate. She was also interested in expanding her business to Eastern Canada and felt this would help in doing so. On January 1, 2019, BP acquired 60% of the common shares of Sprouting Farms (SF), located near St Anthony, Nfld. for $580,000 cash. At the time of acquisition, SF had retained eamings of $245,000 and common shares of $120,000. SF was also a private company following IFRS. All of SF's fair values approximated their carrying values except for the following: Equipment with net book value of $320,000 (with accumulated depreciation of $80,000) had a fair value of $400,000 and 8 years remaining of depreciation; Inventory was undervalued by $15,000; and An unrecorded patent for a bike mechanism with a value of $40,000. BP expected that the life of the patent was 10 years. It is now December 31, 2020 and BP is getting ready to prepare its consolidated financial statements for the year. The separate entity statements are shown in Exhibit I. Additional information required to prepare the consolidated statements is shown in Exhibit II. Exhibit 1 Staternent of Financial Position As at December 31, 2020 Cash Receivables Notes Receivable Inventory Investment in SF Property, Plant and Equipment Accumulated Depreciation Land Total Assets BP SF 140,000 35,000 80,000 15.000 35,000 650,000 332,000 520.000 750,000 500,000 (450,000) (180,000) 120,000 40.000 $1,905,000 $742,000 140,000 Current Liabilities Note Payable Long-term Debt Common Shares Retained Earnings Total Liabilities & Equity 270,000 800,000 695,000 $1,905,000 200,000 35,000 40,000 120,000 347,000 $742,000 Statement of Income For the Year Ended December 31, 2020 Revenues Other Revenues COGS Gain on Sale of Land Administrative Expenses Miscellaneous Expenses Depreciation Expenses Income Tax Expense Net Income BP SF $1,000.000 $ 650,000 300.000 100.000 (845,000) (525.000) 30,000 (50.000) (15,000) (150,000) (35,000) (90,000) (50,000) (66,000) (38,000) $ 99,000 $117.000 EXHIBIT 2 During 2020, BP sold $80,000 of inventory to SF, of which half remained unsold at year end. BP has a gross profit rate of 35%. BP sold $45,000 inventory to SF of which $20,000 remained at the end of 2019. The note receivable is for the inventory purchases between SF and BP. During 2020, SF sold $65,000 of inventory to BP, of which 80% was sold by year end. SF has a gross profit rate of 30%. SF didn't sell any inventory to BP during 2. 2019. In 2019, BP sold equipment to SF for $100,000. The equipment is being depreciated over 10 years by SF. The equipment had a net book value of $80,000 and accumulated depreciation when sold of $40,000. In 2020, SF sold land to another company for $50,000. The land had an original cost of $20,000 and had appreciated in value due to the resurgence of the neighbourhood in St. John's during 2019. SF declared and paid a dividend of $25,000 in 2020. There was no dividend paid in 2019. Assume an income tax rate of 40% for both companies. Based on information known to SF and BP, they believe there is an impairment in the patent at the end of 2020 and that it is now only worth $15,000. BP consolidates following IFRS and wants to maximize any goodwill on its financial statements. o Required: Prepare the consolidated financial statements for December 31, 2020. You may use the attached consolidation worksheet, or you may use the Direct Method. If using the Direct Method please ensure you provide notes on how for December 31, 2020 and include any information you believe is needed to support the numbers in the financial statements. Bright Pea Expansion Bright Pea (BP) was founded in Manitoba in 2001 by Nancy Rock. Over the years, BP has had significant growth and loyal following of customers. In the late 2000s, BP went through a major expansion, with Nancy adding a warehouse and retail space. In 2014, BP converted its financial statements to conform with IFRS. Although BP is a private company, Nancy felt that using IFRS would help her obtain global financing at a more competitive rate. She was also interested in expanding her business to Eastern Canada and felt this would help in doing so. On January 1, 2019, BP acquired 60% of the common shares of Sprouting Farms (SF), located near St Anthony, Nfld. for $580,000 cash. At the time of acquisition, SF had retained eamings of $245,000 and common shares of $120,000. SF was also a private company following IFRS. All of SF's fair values approximated their carrying values except for the following: Equipment with net book value of $320,000 (with accumulated depreciation of $80,000) had a fair value of $400,000 and 8 years remaining of depreciation; Inventory was undervalued by $15,000; and An unrecorded patent for a bike mechanism with a value of $40,000. BP expected that the life of the patent was 10 years. It is now December 31, 2020 and BP is getting ready to prepare its consolidated financial statements for the year. The separate entity statements are shown in Exhibit I. Additional information required to prepare the consolidated statements is shown in Exhibit II. Exhibit 1 Staternent of Financial Position As at December 31, 2020 Cash Receivables Notes Receivable Inventory Investment in SF Property, Plant and Equipment Accumulated Depreciation Land Total Assets BP SF 140,000 35,000 80,000 15.000 35,000 650,000 332,000 520.000 750,000 500,000 (450,000) (180,000) 120,000 40.000 $1,905,000 $742,000 140,000 Current Liabilities Note Payable Long-term Debt Common Shares Retained Earnings Total Liabilities & Equity 270,000 800,000 695,000 $1,905,000 200,000 35,000 40,000 120,000 347,000 $742,000 Statement of Income For the Year Ended December 31, 2020 Revenues Other Revenues COGS Gain on Sale of Land Administrative Expenses Miscellaneous Expenses Depreciation Expenses Income Tax Expense Net Income BP SF $1,000.000 $ 650,000 300.000 100.000 (845,000) (525.000) 30,000 (50.000) (15,000) (150,000) (35,000) (90,000) (50,000) (66,000) (38,000) $ 99,000 $117.000 EXHIBIT 2 During 2020, BP sold $80,000 of inventory to SF, of which half remained unsold at year end. BP has a gross profit rate of 35%. BP sold $45,000 inventory to SF of which $20,000 remained at the end of 2019. The note receivable is for the inventory purchases between SF and BP. During 2020, SF sold $65,000 of inventory to BP, of which 80% was sold by year end. SF has a gross profit rate of 30%. SF didn't sell any inventory to BP during 2. 2019. In 2019, BP sold equipment to SF for $100,000. The equipment is being depreciated over 10 years by SF. The equipment had a net book value of $80,000 and accumulated depreciation when sold of $40,000. In 2020, SF sold land to another company for $50,000. The land had an original cost of $20,000 and had appreciated in value due to the resurgence of the neighbourhood in St. John's during 2019. SF declared and paid a dividend of $25,000 in 2020. There was no dividend paid in 2019. Assume an income tax rate of 40% for both companies. Based on information known to SF and BP, they believe there is an impairment in the patent at the end of 2020 and that it is now only worth $15,000. BP consolidates following IFRS and wants to maximize any goodwill on its financial statements. o Required: Prepare the consolidated financial statements for December 31, 2020. You may use the attached consolidation worksheet, or you may use the Direct Method. If using the Direct Method please ensure you provide notes on how for December 31, 2020 and include any information you believe is needed to support the numbers in the financial statements