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Purpose Several methods to record investments in other companies were discussed in this course. The method selected depends upon the degree of influence the investor has over the investee. Particularly, the course focuses mostly on the topic of business consolidations. In this project you are asked to use the proper accounting methods to record equity investments in other companies. Particularly, you are requested to take a business combination through the consolidation process when appropriate. By completing this project, the hope is that you will have a better understanding of the proper accounting methods used to account for investments in other companies as well as a better understanding of the entire consolidation process and gain confidence that you can solve a real-life business consolidation ACO 421-Advanced Accounting project Poultrade Inc. is a US-based company trading FMCG (Fast Moving Consumer Goods). In 2017, the board of directors of Poultrade decided to enter into new markets by engaging in several business combinations Subsequent to this decision, Poultrade purchased shares in three companies in 2018. The companies are Mondelez, Recket, and Foodica. Acquisition details are listed below: The acquisition of Mondelez On January 1, 2017, Poultrade acquired 45% of Mondelez for 5803,000 and thus it obtained significant influence on the operations of Mondelez. At the date of acquisition, Mondelez had a book value of $1,000,000. It reported a net income of SI55.000 and dividends of S40,000 in the current year. The following assets were undervalued at the date of acquisition as shown below: Book Value Fair Value Equipment (life 30 years) $380,000 $530,000 Furniture (life 16 years) $516,000 $596,000 Patented Technology (life 20 years) $100,000 $200,000 The Acquisition of Recket On January 1, 2017, Poultrade also acquired 10% of Recket for S480,000 cash. During the year, Rocket had a net income of $140,000 and paid dividends of S46,000. In addition, the fair value of Poultrade's Investment in Recket increased to 5520,000 during the year The acquisition of Mondelez On January 1, 2017, Poultrade acquired 45% of Mondelez for $803,000 and thus it obtained significant influence on the operations of Mondelez. At the date of acquisition, Mondelez had a book value of $1,000,000. It reported a net income of $155,000 and dividends of $40,000 in the current year. The following assets were undervalued at the date of acquisition as shown below: Book Value Fair Value Equipment (life 30 years) $380,000 $530,000 Furniture (life 16 years) $516,000 $596,000 Patented Technology (life 20 years) $100,000 $200,000 The Acquisition of Recket On January 1, 2017, Poultrade also acquired 10% of Recket for $480,000 cash. During the year, Recket had a net income of $140,000 and paid dividends of $46,000. In addition, the fair value of Poultrade's Investment in Recket increased to $520,000 during the year. The Acquisition of Foodica On January 1, 2017, Poultrade, Inc., acquired 60% of the common stock of Foodica, Inc., for $392,400. Foodica's book value on that date consisted of common stock of $100,000 and retained eamings of $231,900. Also, the acquisition date fair value of the 40 percent noncontrolling interest was $261.600. The subsidiary held patents (with a 10-year remaining life) that were undervalued within the company's accounting records by 581,700 and an unrecorded customer list (15-year remaining life) assessed at a 557.000 fair value. Any remaining excess acquisition date fair value was assigned to goodwill. Since acquisition, Poultrade has applied the equity method to its Investment in Foodica account and no goodwill impairment has occurred. At year end, there are no intra-entity payables or receivables. Intra-entity inventory sales between the two companies have been made as follows: Year 2017 2018 Cost to Poultrade $130,800 113,400 Selling Price to Foodica $163.500 151,200 Ending Balance cat transfer price $54.500 37,800 The individual financial statements for these two companies as of December 31, 2018, and the year then ended follow: Poultrade, $ 1741, 000) 487,000 199,020 (35,308) Foodica, Inc. $ (377,000) 230, 200 79,400 $ (90,289) 1792,000) (90,289) 49.100 168, 400) (283, 800) 168,400) 19,600 (833,188) 5 (332, 600) Sales Cost of goods sold Operating expenses Equity in earnings in Foodica Net income Retained earnings, 1/1/18 Net income Dividends declared Retained earnings, 12/31/18 Cash and receivables Inventory Investment in Foodica Buildings (net) Equipment (net) Patents (net) Total assets Liabilities Common stock Retained earnings, 12/31/18 Total liabilities and S and equities $ 151, 400 132,000 283, 600 266, 400 429,006 347,000 247,700 $1,573,706 $ 1440,518) [300,000) (833,188) 206,500 90,100 24.800 $604, 800 $ (172,200) (100,000) (332.600) $(1,573,706) $ (604, 800) Project Guidelines 1- The Board of Director of Poultrade directed the company to engage in several business combinations. In your opinion, what are the benefits that Poultrade would receive from such business combinations? Explain. 2- For each of the above described investments, determine what is the appropriate accounting method to be used to record the investment made by Poultrade (ie.: Fair value, Equity, consolidation). Explain your choice and reasoning in details. (Treat each acquisition independently from the other) 3. For each acquisition resulting in significant influence or control, determine the purchase price and the complete allocation of the purchase price, including the computation of the amortization amounts related to any differences between book value and fair value and the determination of the amount of goodwill (if any) or gain on bargain purchase (if any). 4. For each of the above described investments, prepare all journal entries that Poultrade made at the date of each acquisition including entries for any extra acquisition costs (if any). 5. For each of the above described investments, prepare all the proper journal entries that should be made in the books of Poultrade to apply the appropriate method. Show all your calculations and supporting schedules 6. For each acquisition that requires consolidation, prepare all consolidation/elimination entries necessary to complete the December 21, 2018 consolidation. In addition to listing the elimination entries, you should provide an explanation for each climination entry done (You should explain why each elimination entry is done). 7. For each acquisition that requires consolidation, post all the consolidation entries to the excel spreadsheet attached. If necessary, you may add lines to the spreadsheet to complete the consolidation. After completion of the worksheet, you should include it in the word document presented. The excel sheet should also be submitted with the project. Your proper use of excel to complete the consolidation process constitutes part of your grade. Susted project outline 1-Introduction II-Advantages of Business Combinations III-Investment in Mondelez (method, explanation, entries....) IV-Investment in Recket (method, explanation, entries....) V-Investment in Foodica (method, explanation, entries....) VI. Conclusion (The above is just a suggested basic outline to help you write your report, however it can be amended according to the preferences of each group). Purpose Several methods to record investments in other companies were discussed in this course. The method selected depends upon the degree of influence the investor has over the investee. Particularly, the course focuses mostly on the topic of business consolidations. In this project you are asked to use the proper accounting methods to record equity investments in other companies. Particularly, you are requested to take a business combination through the consolidation process when appropriate. By completing this project, the hope is that you will have a better understanding of the proper accounting methods used to account for investments in other companies as well as a better understanding of the entire consolidation process and gain confidence that you can solve a real-life business consolidation ACO 421-Advanced Accounting project Poultrade Inc. is a US-based company trading FMCG (Fast Moving Consumer Goods). In 2017, the board of directors of Poultrade decided to enter into new markets by engaging in several business combinations Subsequent to this decision, Poultrade purchased shares in three companies in 2018. The companies are Mondelez, Recket, and Foodica. Acquisition details are listed below: The acquisition of Mondelez On January 1, 2017, Poultrade acquired 45% of Mondelez for 5803,000 and thus it obtained significant influence on the operations of Mondelez. At the date of acquisition, Mondelez had a book value of $1,000,000. It reported a net income of SI55.000 and dividends of S40,000 in the current year. The following assets were undervalued at the date of acquisition as shown below: Book Value Fair Value Equipment (life 30 years) $380,000 $530,000 Furniture (life 16 years) $516,000 $596,000 Patented Technology (life 20 years) $100,000 $200,000 The Acquisition of Recket On January 1, 2017, Poultrade also acquired 10% of Recket for S480,000 cash. During the year, Rocket had a net income of $140,000 and paid dividends of S46,000. In addition, the fair value of Poultrade's Investment in Recket increased to 5520,000 during the year The acquisition of Mondelez On January 1, 2017, Poultrade acquired 45% of Mondelez for $803,000 and thus it obtained significant influence on the operations of Mondelez. At the date of acquisition, Mondelez had a book value of $1,000,000. It reported a net income of $155,000 and dividends of $40,000 in the current year. The following assets were undervalued at the date of acquisition as shown below: Book Value Fair Value Equipment (life 30 years) $380,000 $530,000 Furniture (life 16 years) $516,000 $596,000 Patented Technology (life 20 years) $100,000 $200,000 The Acquisition of Recket On January 1, 2017, Poultrade also acquired 10% of Recket for $480,000 cash. During the year, Recket had a net income of $140,000 and paid dividends of $46,000. In addition, the fair value of Poultrade's Investment in Recket increased to $520,000 during the year. The Acquisition of Foodica On January 1, 2017, Poultrade, Inc., acquired 60% of the common stock of Foodica, Inc., for $392,400. Foodica's book value on that date consisted of common stock of $100,000 and retained eamings of $231,900. Also, the acquisition date fair value of the 40 percent noncontrolling interest was $261.600. The subsidiary held patents (with a 10-year remaining life) that were undervalued within the company's accounting records by 581,700 and an unrecorded customer list (15-year remaining life) assessed at a 557.000 fair value. Any remaining excess acquisition date fair value was assigned to goodwill. Since acquisition, Poultrade has applied the equity method to its Investment in Foodica account and no goodwill impairment has occurred. At year end, there are no intra-entity payables or receivables. Intra-entity inventory sales between the two companies have been made as follows: Year 2017 2018 Cost to Poultrade $130,800 113,400 Selling Price to Foodica $163.500 151,200 Ending Balance cat transfer price $54.500 37,800 The individual financial statements for these two companies as of December 31, 2018, and the year then ended follow: Poultrade, $ 1741, 000) 487,000 199,020 (35,308) Foodica, Inc. $ (377,000) 230, 200 79,400 $ (90,289) 1792,000) (90,289) 49.100 168, 400) (283, 800) 168,400) 19,600 (833,188) 5 (332, 600) Sales Cost of goods sold Operating expenses Equity in earnings in Foodica Net income Retained earnings, 1/1/18 Net income Dividends declared Retained earnings, 12/31/18 Cash and receivables Inventory Investment in Foodica Buildings (net) Equipment (net) Patents (net) Total assets Liabilities Common stock Retained earnings, 12/31/18 Total liabilities and S and equities $ 151, 400 132,000 283, 600 266, 400 429,006 347,000 247,700 $1,573,706 $ 1440,518) [300,000) (833,188) 206,500 90,100 24.800 $604, 800 $ (172,200) (100,000) (332.600) $(1,573,706) $ (604, 800) Project Guidelines 1- The Board of Director of Poultrade directed the company to engage in several business combinations. In your opinion, what are the benefits that Poultrade would receive from such business combinations? Explain. 2- For each of the above described investments, determine what is the appropriate accounting method to be used to record the investment made by Poultrade (ie.: Fair value, Equity, consolidation). Explain your choice and reasoning in details. (Treat each acquisition independently from the other) 3. For each acquisition resulting in significant influence or control, determine the purchase price and the complete allocation of the purchase price, including the computation of the amortization amounts related to any differences between book value and fair value and the determination of the amount of goodwill (if any) or gain on bargain purchase (if any). 4. For each of the above described investments, prepare all journal entries that Poultrade made at the date of each acquisition including entries for any extra acquisition costs (if any). 5. For each of the above described investments, prepare all the proper journal entries that should be made in the books of Poultrade to apply the appropriate method. Show all your calculations and supporting schedules 6. For each acquisition that requires consolidation, prepare all consolidation/elimination entries necessary to complete the December 21, 2018 consolidation. In addition to listing the elimination entries, you should provide an explanation for each climination entry done (You should explain why each elimination entry is done). 7. For each acquisition that requires consolidation, post all the consolidation entries to the excel spreadsheet attached. If necessary, you may add lines to the spreadsheet to complete the consolidation. After completion of the worksheet, you should include it in the word document presented. The excel sheet should also be submitted with the project. Your proper use of excel to complete the consolidation process constitutes part of your grade. Susted project outline 1-Introduction II-Advantages of Business Combinations III-Investment in Mondelez (method, explanation, entries....) IV-Investment in Recket (method, explanation, entries....) V-Investment in Foodica (method, explanation, entries....) VI. Conclusion (The above is just a suggested basic outline to help you write your report, however it can be amended according to the preferences of each group)