Canaan's Curios Corp. Canaan's 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. TJI's financial statements together with additional pertinent information follow: Tymen Jungle Inc. Statement of financial position As at December 31 (in '000s) Carrying value Fair Remaining value useful life/term to 20x7 20x6 20X6 maturity Cash $ 68 $ 35 Accounts receivable 75 48 Inventory 74 62 $ 68 N/A Land 325 175 164 N/A Building (net) 285 300 345 15 years Equipment (net) 232 400 380 5 years Patent 30 30 142 16 years Total assets $1,089 $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 25 Tymen Jungle Inc. Statement of comprehensive income For the year ended December 31, 20X7 (in '000s) Sales revenue $885 Cost of goods sold 440 Gross profit 445 Sales, general, and administrative expenses 361 Interest expense 27 Depreciation and amortization expense 32 Other income 135 Earnings before income tax expense 167 Income tax expense 33 Net income $ 134 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. TJl 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 December's rent. Land sale: On December 31, 20X7, CCC sold land to TJI for $150,000. CCC's 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. CCC's 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: TJI purchased new equipment on January 1, 20X7 and immediately sold it to CCC for $70,000 cash. Tul's cost of the equipment, which had a 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 earings method.' 6. For impaiment-testing purposes, CCC established that TJl is a cash-generating unit (CGU) 7. CCC and TJI only prepare accruals and other adjusting entries at year end. 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 CCC's journal entry to record the acquisition. Remember to provide a brief explanation for each journal entry. (3 marks) Canaan's Curios Corp. Canaan's 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. TJI's financial statements together with additional pertinent information follow: Tymen Jungle Inc. Statement of financial position As at December 31 (in '000s) Carrying value Fair Remaining value useful life/term to 20x7 20x6 20X6 maturity Cash $ 68 $ 35 Accounts receivable 75 48 Inventory 74 62 $ 68 N/A Land 325 175 164 N/A Building (net) 285 300 345 15 years Equipment (net) 232 400 380 5 years Patent 30 30 142 16 years Total assets $1,089 $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 25 Tymen Jungle Inc. Statement of comprehensive income For the year ended December 31, 20X7 (in '000s) Sales revenue $885 Cost of goods sold 440 Gross profit 445 Sales, general, and administrative expenses 361 Interest expense 27 Depreciation and amortization expense 32 Other income 135 Earnings before income tax expense 167 Income tax expense 33 Net income $ 134 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. TJl 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 December's rent. Land sale: On December 31, 20X7, CCC sold land to TJI for $150,000. CCC's 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. CCC's 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: TJI purchased new equipment on January 1, 20X7 and immediately sold it to CCC for $70,000 cash. Tul's cost of the equipment, which had a 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 earings method.' 6. For impaiment-testing purposes, CCC established that TJl is a cash-generating unit (CGU) 7. CCC and TJI only prepare accruals and other adjusting entries at year end. 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 CCC's journal entry to record the acquisition. Remember to provide a brief explanation for each journal entry