consolidation question
On January 1st, 1949, Ivanhoe Ltd., a Canadian fisted company acquired 80% of the outstanding common shares of Gldan Ltd. by issuing $480,000 common shares. On that acquisition date, the carrying values of Gildan Ltd's common shares and retained earnings are $200,000 and $100,000, respectively, and all other Identifiable assets and liabilities of Gildan have fair values equal to carrying values except for four items: inventories, building, land, and notes payable. Specifically, the fair value adjustments (FVA) for these four items are as follows: FVA for inventories is $20,000, for building is $70,000, for land is $900,000, and for short-term notes payable is $10,000. Both building and equipment are depreciated using the straight-line method, and the building has an estimated 14 years remaining lifetime starting from the acquisition date Ivanhoe uses the cost method to report its investment in Gadan in its separate-entity financial statements. Below shows the separate financial statements for Ivanhoe Lid and Gildan Lid as of December 31, 205 Statements of Financial Position on December 31, 20Xs Ivanhoes Gidas Assets Cash 100.000 30,000 Accounts receivables 160.000 90,000 levedy 140.000 100,000 Due from Gildan 105.000 Land 130,000 55,000 Building and equipment 970,000 380,000 Larvestment in Gildan (at cost) 480.000 Total 50.000 Liabilities Short-term Notes payable 305.000 50,000 Due to Ivanhoe 105,000 Bonds payable 500.000 Shareholder's Equity Common shares 300.000 200.000 Retained earnings 200.000 Total 235.00 ZOS. Statements of Comprehensive Income on December 31, 20% Ivanhoes Gildas Sales 3,000,000 2,000,000 Other income and revenue 110,000 70,000 Cost of sales 1,800,000 1,300,000 Depreciation expenses 400,000 400,000 Other pees 500.000 225.000 Net income and comprehensive income 410.000 144.002 Additional information: 1. During 2045, Ivanhoe purchased merchandise of $400.000 from Oldan, of which 560,000 remains in the warehouse of Ivanhoe on December 31, 20x5. Ivanhoe also sold merchandise of $300,000 to Gildan in 20x5 of which $40,000 remained in the warehouse of Gldan on December 31, 20x5 in 2015, the gross margin is 30% of selling price for both companies. 2. During 20x4, Gildan purchased merchandise totaling $300,000 from Ivanhoe, of which $80,000 remains in the warehouse of Gildan at December 31, 20x4. Gildan also sold merchandise totaling $150,000 to Ivanhoe in 20x4, of which $35,000 remains in Gildan's warehouse at year end. In 204, the gross margin is also 30% of selling price for both companies. 3. During 2045, Gildan sold a piece of tand to Ivanhoe for $50,000, and the land was originally purchased for $35,000 4. On January 110x5, Gidan purchased a piece of equipment for $100,000 that had an estimated useful life of 20 years, then on January 200, Gildan sold the equipment to Ivanhoe for $60,000. The estimated useful life and depreciation policy of the equipment remains unchanged after the land transaction 5. Ivanhoe runs impairment test for its goodwill each year after the acquisition date. Ivanhoe determines that the carrying value of acquisition goodwill should be be lowered by $20,000 in 20x1, and should be further lowered by $30,000 in 205 6. During 20X5, Cadan declared dividends $5,000 and 'vanhoe declared dividends $35,000. Required: please answer questions Q1 to Q3 using the information provided above. Q1: You are the consolidation accountant of Ivanhoe Ltd, and your supervisor asks you to use entity method to work on Ivanhoe Ltd's consolidated financial statements for December 31, 20X5. Please prepare the Consolidated Statement of Comprehensive Income and the Consolidated Statement of Financial Position for December 31, 20X5, and show your calculation for non-controlling interests' (NCI) portion of net income in 20x5, Ivanhoe's retained earnings on December 31, 2005, and NCI's balance of net assets on December 31, 2005. (42 marks) Q2: What is parent-company extension method, and how does it differ from entity method? Your supervisor wants to know how the following four items would be if using parent-company extension method to prepare Ivanhoe's consolidated statements as of December 31, 20x5: (15 marks) a) Consolidated earnings attributed to non-controlling interests; b) Goodwill c) NCI's ending balance of net assets; d) Ivanhoe's ending retained earnings. Q3: Sometimes, Ivanhoe's banks require Ivanhoe to provide equity basis separate financial statements. Your supervisor asks you to calculate the following items to be reported in the equity basis separate financial statements for December 31, 20x5: (8 marks) a) Equity in Gildan's earnings b) Investment in Gildan. On January 1st, 1949, Ivanhoe Ltd., a Canadian fisted company acquired 80% of the outstanding common shares of Gldan Ltd. by issuing $480,000 common shares. On that acquisition date, the carrying values of Gildan Ltd's common shares and retained earnings are $200,000 and $100,000, respectively, and all other Identifiable assets and liabilities of Gildan have fair values equal to carrying values except for four items: inventories, building, land, and notes payable. Specifically, the fair value adjustments (FVA) for these four items are as follows: FVA for inventories is $20,000, for building is $70,000, for land is $900,000, and for short-term notes payable is $10,000. Both building and equipment are depreciated using the straight-line method, and the building has an estimated 14 years remaining lifetime starting from the acquisition date Ivanhoe uses the cost method to report its investment in Gadan in its separate-entity financial statements. Below shows the separate financial statements for Ivanhoe Lid and Gildan Lid as of December 31, 205 Statements of Financial Position on December 31, 20Xs Ivanhoes Gidas Assets Cash 100.000 30,000 Accounts receivables 160.000 90,000 levedy 140.000 100,000 Due from Gildan 105.000 Land 130,000 55,000 Building and equipment 970,000 380,000 Larvestment in Gildan (at cost) 480.000 Total 50.000 Liabilities Short-term Notes payable 305.000 50,000 Due to Ivanhoe 105,000 Bonds payable 500.000 Shareholder's Equity Common shares 300.000 200.000 Retained earnings 200.000 Total 235.00 ZOS. Statements of Comprehensive Income on December 31, 20% Ivanhoes Gildas Sales 3,000,000 2,000,000 Other income and revenue 110,000 70,000 Cost of sales 1,800,000 1,300,000 Depreciation expenses 400,000 400,000 Other pees 500.000 225.000 Net income and comprehensive income 410.000 144.002 Additional information: 1. During 2045, Ivanhoe purchased merchandise of $400.000 from Oldan, of which 560,000 remains in the warehouse of Ivanhoe on December 31, 20x5. Ivanhoe also sold merchandise of $300,000 to Gildan in 20x5 of which $40,000 remained in the warehouse of Gldan on December 31, 20x5 in 2015, the gross margin is 30% of selling price for both companies. 2. During 20x4, Gildan purchased merchandise totaling $300,000 from Ivanhoe, of which $80,000 remains in the warehouse of Gildan at December 31, 20x4. Gildan also sold merchandise totaling $150,000 to Ivanhoe in 20x4, of which $35,000 remains in Gildan's warehouse at year end. In 204, the gross margin is also 30% of selling price for both companies. 3. During 2045, Gildan sold a piece of tand to Ivanhoe for $50,000, and the land was originally purchased for $35,000 4. On January 110x5, Gidan purchased a piece of equipment for $100,000 that had an estimated useful life of 20 years, then on January 200, Gildan sold the equipment to Ivanhoe for $60,000. The estimated useful life and depreciation policy of the equipment remains unchanged after the land transaction 5. Ivanhoe runs impairment test for its goodwill each year after the acquisition date. Ivanhoe determines that the carrying value of acquisition goodwill should be be lowered by $20,000 in 20x1, and should be further lowered by $30,000 in 205 6. During 20X5, Cadan declared dividends $5,000 and 'vanhoe declared dividends $35,000. Required: please answer questions Q1 to Q3 using the information provided above. Q1: You are the consolidation accountant of Ivanhoe Ltd, and your supervisor asks you to use entity method to work on Ivanhoe Ltd's consolidated financial statements for December 31, 20X5. Please prepare the Consolidated Statement of Comprehensive Income and the Consolidated Statement of Financial Position for December 31, 20X5, and show your calculation for non-controlling interests' (NCI) portion of net income in 20x5, Ivanhoe's retained earnings on December 31, 2005, and NCI's balance of net assets on December 31, 2005. (42 marks) Q2: What is parent-company extension method, and how does it differ from entity method? Your supervisor wants to know how the following four items would be if using parent-company extension method to prepare Ivanhoe's consolidated statements as of December 31, 20x5: (15 marks) a) Consolidated earnings attributed to non-controlling interests; b) Goodwill c) NCI's ending balance of net assets; d) Ivanhoe's ending retained earnings. Q3: Sometimes, Ivanhoe's banks require Ivanhoe to provide equity basis separate financial statements. Your supervisor asks you to calculate the following items to be reported in the equity basis separate financial statements for December 31, 20x5: (8 marks) a) Equity in Gildan's earnings b) Investment in Gildan
