Canaans Curios Corp. Canaans Curios Corp. (CCC) is a company located in Western Canada that reports its financial results in accordance with IFRS. CCC has acquired shares in Tymen Jungle Inc. (TJI). TJIs financial statements, together with additional pertinent information, follow: Tymen Jungle Inc. Statement of financial position As at December 31 (in 000s) Carrying value Fair value Remaining useful life/term 20X7 20X6 20X6 to 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 $ 37 Notes payable 50 0 Long-term debt 300 400 Bonds payable 250 250 262 6 years Common shares 180 180 Retained earnings 257 183 Total liabilities and equity $1,089 $1,050 Advanced Financial Reporting Project 1 3 / 12 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 25 32 Other income 135 Earnings before income tax expense 167 Income tax expense 33 Net income $ 134 Intercompany transactions: On December 31, 20X6, CCC paid $125,000 cash to acquire 25% of TJIs outstanding common shares. 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. Advanced Financial Reporting Project 1 4 / 12 TJI purchased new equipment on January 1, 20X7, and immediately sold it 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. For impairment-testing purposes, CCC established that TJI is a cash-generating unit (CGU). CCC tested TJI for impairment on December 31, 20X7, and the investment was found to be impaired by $3,500. 6. CCC and TJI only prepare accruals and other adjusting entries at year end. Required: a) Prepare journal entries to record CCCs acquisition of its interest in TJI in 20X6 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) 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 . 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)