Danforth Company is a construction company with the following financial statements, prepared in accordance with International Financial Reporting Standards (IFRS). Danforth Company is primarily considered a service company focusing on construction consultation and construction related projects. Clients will supply their own materials. The financial data is presented before any tax implications. Danforth Company Balance Sheet As at December 31, 2021 $ CAD Current Assets Cash Accounts receivable, net (note 1, note 5) Construction projects, in progress Total Current Assets 50,000 200,000 120,000 370,000 Long-term Assets Property, plant and equipment, net (note 2, note 5) 300,000 Total Long-term Assets 300,000 Total Assets 670,000 Current Liabilities Accounts payable and accruals (note 3, note 5) 60,000 Payroll (labor) payable (note 5) 300,000 Total Current Liabilities 360,000 Long-term Liabilities Deferred revenue (note 4, note 5) Total Long-term liabilities 80,000 80,000 Equity Common shares Retained earnings Total Equity Total Liabilities and Equity Revenue Construction projects billed Construction consultation (note 5) Total Revenue 100 229,900 230,000 670,000 Danforth Company Income Statement For the year ended December 31, 2021 $ CAD 1,750,000 200,000 1,950,000 896,000 174,000 1,070,000 880,000 Cost of Goods/Services sold Construction projects billed Construction consultation (note 5) Total Cost of Goods/Services sold Gross Profit Operating Expenses Administrative expense 5,000 Insurance expense 12,000 Bad debt expense 31,000 Depreciation expense (note 2, note 5) 347,000 Office supplies 16,000 Payroll expense Travel expense Office rent Total Operating Expenses Net Income (Loss) NOTES TO THE FINANCIAL STATEMENTS: Note 1 Accounts receivable, net Accounts receivable consists of the following: Tunnel Co. Handle Inc. Potter Company (note 5) Garage Ltd. 35,000 25,000 100,000 40,000 200,000 541,000 32,000 25,000 1,009,000 (129,000) Note 2 Total Property, plant and equipment, net Property, plant and equipment consists of a crane, construction machinery and miscellaneous construction tools. Depreciation is recorded and booked following the CCA tax rates. Note 3 Accounts payable and accruals Accounts payable and accruals consists of the following: Mercury Co. Potter Company (note 5) Note 4 Table Pear Inc. Total Deferred revenue Deferred revenue consists of the following two transactions: 5,000 40,000 15,000 60,000 2) Note 5 A $60,000 deposit for a contract with ABC Company for the construction of a new school to start in 15 months. A $20,000 deposit for a contract with Potter Company (note 5) to construct a new condominium in 2023. Inter-company transactions In 2019, Potter Company bought 100% of the common shares of Danforth Company and values this investment using the consolidation method. During the year the following inter-company transactions took place: Danforth Company billed Potter Company $80,000 worth of construction consultation. This equated to labor costs for Danforth Company of $65,000, recorded within the cost of services. This was paid on account. Potter Company billed $40,000 worth of construction tools to Danforth Company, which was sold on account. The tools accumulated depreciation of $4,000 within the year. Potter Company paid an upfront deposit to Danforth Company of $20,000 for a future construction project of a new condominium to begin in 2023, paid on account. Potter Company ("The Company") is a large multi-national manufacturer of construction tools, materials and equipment with multiple investments worldwide. The Company follows International Financial Reporting Standards (IFRS). The financial data is presented before any tax implications. Current Assets Cash Accounts receivable, net (note 1, note 4) Inventory: Raw materials 320,000 Work-in-progress (stage 1) 41,800 Potter Company Balance Sheet As at December 31, 2021 $ CAD 1,500,000 800,000 Work-in-progress (stage 2) 267,000 Work-in-progress (stage 3) 300,000 Work-in-progress (stage 4) Finished goods (note 4) 10,200 341,000 1,280,000 Prepaid assets and deposits (note 2, note 4) Investments (note 3) Total Current Assets 20,000 244,000 3,844,000 Investment in Danforth Company (note 4) Long-term Assets Total Long-term Assets Total Assets 230,000 230,000 4,074,000 Current Liabilities Accounts payable (note 4, note 5) Bank loan payable (note 6) 2,367,000 250,000 Total Current Liabilities 2,617,000 Long-term Liabilities Bank loan payable (note 6) Total Long-term Liabilities 1,250,000 1,250,000 Equity Total Equity Common shares Retained earnings Total Liabilities and Equity 600 206,400 207,000 4,074,000 Revenue Construction tools (note 4) Construction materials Income Statement Potter Company For the year ended December 31, 2021 $ CAD 486,000 618,000 Construction equipment Total Revenue 71,000 1,175,000 Cost of Goods sold Construction tools (note 4) 181,000 Construction materials 253,000 Construction equipment 53,000 Total COGS 487,000 688,000 Gross Profit Operating Expenses Administrative expense 12,000 Construction consultation (note 4) 80,000 Operating leases of factory equipment (note 7) 224,000 Wages expense 175,000 Rent - Factory 48,000 Rent - Office 24,000 Office supplies Insurance expense Total operating expenses Operating Income 8,000 22,000 593,000 95,000 Other Income and expenses Dividend income Interest expense Net income (loss) NOTES TO THE FINANCIAL STATEMENTS: Note 1 Accounts receivable, net Accounts receivable consists of the following: Repoco Co. Danforth Company (note! JollyGood Company 10,000 40,000 360,000 2,000 Heafstead Ltd. Black Box Limited Curve Slice Inc. Platinum Company Total 15,000 350,000 23,000 800,000 20,000 30,000 85,000 Note 2 Prepaid assets and deposits The prepaid deposit consists of a $20,000 upfront payment made to Danforth Company for the construction of a new condominium to begin in 2023. Note 3 Investments Investments consist of non-strategic short-term investments recorded at fair value through profit and loss. Note 4 Inter-company transactions In 2019, Potter Company bought 100% of the common shares of Danforth Company and values this investment using the consolidation method. During the year the following inter-company transactions took place: Danforth Company billed Potter Company $80,000 worth of construction consultation. This was paid on account. Potter Company billed $40,000 worth of construction tools to Danforth Company, which was sold on account. These tools were originally bought by Potter Company from a supplier for $29,000. Potter Company paid an upfront deposit to Danforth Company of $20,000 for a future construction project of a new condominium to begin in 2023, paid on account. Note 5 Accounts payable Accounts payable consists of the following: Republic Inc. Danforth Company (note. Mercury and Co. Eager too learn Inc. Evergreen Ltd. Energy Lux Co. Total Bank loan payable 1,150,000 100,000 325,000 460,000 15,000 317,000 2,367,000 Note 6 RGC Bank has provided Potter Company with a $1,500,000 unsecured loan with an annual interest rate of 2% with the following repayment terms: Note 7 2022 2023 2024 2025 2026 and on Total Operating leases of factory equipment 250,000 250,000 250,000 250,000 500,000 1,500,000 All operating leases do not offer buyout options or options to own the asset at the end of the lease term. All leases fall under the criteria of operating leases per IFRS. Required: Prepare the consolidated balance sheet and income statement for the companies as at December 31, 2021. Show each individual elimination entry that needs to be recorded for consolidation purposes. /17.5