I am looking forward to cross checking answers for the attached questions. Part b and Part c
Question 2(B) Step 1 ADS Purchase Value of 60% Shares of Sauce Ltd. 1,200,000 Implied Value of 100% Shares of Sauce Ltd. (1200000*100/60) 2,000,000 Less: Book Value of Sauce Ltd. @100% Common Shares 800,000 Retained Earnings 520,000 1,320.000 680 000 Less: Adjust Sauce's Book Value to Fair Value @100% Land (360,000-640,000) 280000 Building {1040000-(1,200,000-400,000)} 240,000 Machinery {80000-(1,040,000-640,000)} (320,000) -200,000 480,000 Step 2 AADS 2007 amortized Unamortized Land 280000 280000 Building (10 years) 240000 24000 216000 machinery (5 years -320000 -64000 -256000 Goodwill 480000 0 480000 total 680000 -40000 720000 Step 3 Inter Company Eliminations Sauce Ltd G/P Margin Sales Cost of Sales = 8000000 4800000 = 3200000 G/P Ratio 3200000 800000 =40% Victory Co G/P Ratio 16000000 / 8000000 =50%Step 4 Step 6 Consolidated Income NCI NI of parent 1144000 Less: Dividends -192000 Down streaming -160000 Shareholding Equity of Subsidiary 800000 Retained Earnings + 1080000 Unamortized balance 720000 792000 Upstreaming 320000 2280000 =8000000-4800000-2240000- NCI-40% 912000 NI of Subs 80000 amort 40000 Downstreaming 320000 Consolidated Income Statement 60000 NI of parent 1144000 Less: Dividends -192000 Consolidated Income 792000 Down streaming -160000 792000 Income Attributed to Parent =792000+60/100*600000 1152000 Income Attributed to Subsidiary =J12*40/100 240000 =8000000-4800000-2240000- NI of Subs 80000 Step 5 amort 40000 Calculation of Consolidated Retained earnings Dec., 20X7 Downstreaming -320000 Victor's ( parent) retained earnings- Dec 20X7 2784000 60000 Less: unrealized profit in the inventory 160000 Sauce's retained earnings- Dec 20X7 Consolidated Income =6+J12 1080000 less retained earnings at acquisition -520000 Post acquisition increase in retained earnings 560000 Income Attributed to Parent =792000+60/100*600000 1152000 Less: goodwill impairment nil Income Attributed to Subsidiary =J12*40/100 240000 Subtotal 560000 Victor's 60% ownership 60% 336000 Consolidated retained earnings 2960000Consolidated balance sheet as on Dec 31, 20x7 Noncurrent assets: Victory Sauce VictoactSauce Eliminations Victoact Sauce. Final 2 (C)_( after acquisition) Calculation of Consolidated statements of Retained earnings 20X8 Long-term loan $400,000 receivable 400000 -400000 Victor's ( parent) retained earnings- Dec 20X8 2784000 Land 1,080,000 1080000 280000 1,360,000 Sauce's retained earnings- Dec 20X8 1640000 Building 2,400.000 1,200.000 3600000 216000 3,816,000 less Accumulated 360,000 480,000 retained earnings at acquisition 520000 depreciation -840000 480000 360.000 Machinery 1,600.000 1,040.000 1120000 2640000 256000 2,384.000 Post acquisition increase in retained earnings Less: goodwill impairment nil Accumulated 640,000 -720,000 XXXXX depreciation -1360000 720000 Less: amortization of acquistional differential -640,000 Subtotal 1120000 Investment in Sauce 1,200,000 Victor's 60% ownership 50% 672000 Ltd 1200000 -1200000 Goodwill 480000 480.000 Consolidated retained earnings 3456000 Total noncurrent assets 7,040.000 Current assets: Inventories 1,280,000 480.000 1760000 -480000 1,280.000 Amounts receivable 480.000 240,000 720000 20000 700,000 Cash 224,000 80.000 304000 304.000 Total current assets 2,284,000 Total assets $6,584,000 $2,920.000 9504000 ,324.000 Shareholders' Equity: Common shares $2,960,000 $800,000 3760000 -800000 2,960.000 Retained earnings 2,784,000 1,080.000 4584000 3,190.400 Total shareholders equity 6,150,400 Noncurrent liabilities: Long-term loan 20,000 800.000 1320000 -400000 920.000 Current liabilities Accounts payable 320,000 240,000 560000 20000 540,000 NCI 912,000 912,000 Total liabilities 2,372,000 Total liabilities and shareholders' equity $6,584,000 $2,920,000 9504000 8,522,400Question 2 On January 2, 20X7, Victory Co. acquired 60% of the shares of Sauce Lid. by issuing Statements of Financial Position shares valued at $1,200,000. On this date, Sauce's building and machinery had As of December 31, 20X7 estimated remaining useful lives of 10 years and 5 years respectively. Both Victory and Sauce use straight-line depreciation. The separate-entity statements of financial Victory Co. Sauce Ltd. position for Victory and Sauce just prior to the acquisition are presented below. Noncurrent assets: Long-term loan receivable 400,000 $ Statements of Financial Position Land 1,080,000 As of January 1, 20X7 Building 2,400,000 1,200,000 Victory Co. Sauce Ltd. Accumulated depreciation (360 000) (480 000) Machinery 1, 600,000 1,040,000 (Carrying Carrying Fail Accumulated depreciation (720 000) Value) Value) Value) (640 000) Investment in Sauce Lid. Noncurrent assets. Total noncurrent assets .1. 200.000 4.600,000 2.120.000 Land 360,000 $ 640.000 Building 2, 080,000 1 200,000 Current assets. 1,040,000 1,280,000 480,000 Accumulated depreciation (320,000) 400,000) Inventories Machinery 400 000 1 040 000 Amounts receivable 480 000 240,000 80 000 80.000 Accumulated depreciation 560.000) 640,000) Cash 224.000 Total noncurrent assets 2,600.000 1,560.000 Total current assets 1.984,000 800,000 Total assets $6 584 000| $2 920 000 Current assets Inventories 640,000 240,000 240,000 Accounts receivable 560,000 160,000 160,000 Shareholders' Equity: 80,000 Common shares $2 960,000 $ 800 000 Cash 400 000 80 000. 480.000 Retained earnings 2 784 000 1.080.000 Total current assets 1,600.000 $4,200,000 $2.040,000 Total shareholders' equity 5,744,000 1,880,000 Total assets Noncurrent liabilities: Long-term loans 520,000 800,000 Shareholders' Equity Common shares $1, 760,000 $ 800,000 Current liabilities: 320.000 240.000 Retained earnings 1.800 000 520 000 Accounts payable 840,000 1.040.000 Total shareholders' equity 3, 560,000 1, 320,000 Total liabilities Total liabilities and shareholders' equity Noncurrent liabilities. $6 584,000 $2 920 000 Long-term bank loan 400,000 400,000 Current liabilities. A/P and accrued liabilities 640,000 320,000 320,000 Total liabilities 540,000 720,000 Total liabilities and shareholders' equity $4 200 000 $2.040.000 The separate-entity financial statements for Victory and Sauce at the end of 20X7 are presented below.Statements of Comprehensive Income Statements of Financial Position For the year ended December 31, 20X7 As of December 31, 20X8 Victory Co. Sauce Ltd. Victory Co. Sauce Ltd. Sales $16,000 000 $8 000,000 Noncurrent assets: Dividend income 192 000 Land ..1 31 080 000 Other income 56,000 Building 3,040,000 1,200,000 16.248.000 8.000,000 Accumulated depreciation (449,600) (560 000) Cost of sales. 4 800 000 Machinery 1 840 000 .1 500 000 Other operating expenses 8000 000 L. 7,088,000 .2 240,000 Accumulated depreciation 544,000) (516,000) Interest expense 16.000 80,000 Investment in Sauce 1 200,000 Total expenses 15 104.000 1.120 000 Total noncurrent assets 5.086. 400 2704 000 Net income and comprehensive income $ 1 144 000 $ 880 000 Current assets Inventories 1040,000 440,000 Accounts receivable 960,000 616,000 Cash 510 400 420.000 Statements of Change in Equity - Retained Earnings Section Total current assets 2 512 400 ..1 476.000 For the year ended December 31, 20X7 Total assets $7.598 800 |$4 180,000 Victory Co. Sauce Lid. 1 20X6 $1, 800,000 |$ 520,000 Shareholders' Equity Retained earnings, December 31, 880 000 Common shares $2,960,000 $ 800,000 Net income. 1. 144 000 .(160 000) | (320 000) Retained earnings 2 784 000| 1 640,000 Dividends declared 5,744,000 2,440,000 Retained earnings. December 31 20X7 | $2 784.000 | $1 080 000 Total shareholders' equity Noncurrent liabilities. Long-term loan. 1,440,000 960 000 During 20X7, Victory and Sauce had the following transactions between them: Current liabilities: Accounts payable 414,800 780,000 . On June 30, 20X7, Sauce borrowed $400,000 from Victory at an interest rate of Total liabilities 1 854 800 ) 1 740 000 10% (simple interest). Interest is to be paid at the end of each calendar year. Total liabilities and shareholders' equity | $7 598 800| $4 180.000 Sauce did not pay the 20X7 interest. During 20X7, Sauce sold $3,200,000 of goods to Victory. At the end of 2007, Statements of Comprehensive Income $800,000 of those goods were still in Victory's ending inventory. Sauce charged For the year ended December 31, 20X8 Victory the same price it charges all its other customers. Victory Co. Sauce Ltd. During 20X7, Victory sold $1,600,000 of goods to Sauce. At the end of 20X7, Sales $17,600,000 $8,800,000 $320,000 of those goods were still in Sauce's ending inventory. Victory charged Dividend income.HILL) 288 000 Sauce the same price it charges all its other customers. Gain on sale of machine 80.000 Other income 96.000 There was no impairment of goodwill for 20X7. 18 064 000 8.800 000 Cost of sales 10,400,000 5,280,000 The separate-entity financial statements for Victory and Sauce at the end of 20X8 are Other operating expenses 6,912,000 2 336,000 presented below. Interest expense 160 000 144 000 Total expenses 17.472 000 7.760.000 Net income and comprehensive income | $ 502 000 8 1 040 000Statements of Change in Equity - Retained Earnings Section For the year ended December 31, 20X8 Victory Co. Sauce Ltd. Retained earnings, December 31, 20X7 \\ $2,784.000 \\ $1,080.000; Net income 592.000 1.040.000 Dividends declared (592.000) (480.000) 20XE $2 784.000 | $1 640 000 Additional information for 20X8: . During 20X8, Victory purchase $1,280,000 in goods from Sauce. At the end of the year, half of these goods were still in Victory's inventory. . During December 20X8, Sauce purchased $320,000 in goods from Victory. At the end of the year, all of these goods were still in Sauce's inventory. . Both Victory and Sauce's gross margins for these goods were unchanged from previous years. . At the end of 20X8, Sauce did not pay the interest due on the loan from Victory, however, both companies had accrued the interest. Required: a) Prepare a consolidated statement of financial position at the acquisition date. b) Prepare a set of consolidated financial statements for 20X7. c) Calculate Victory's consolidated retained earnings for 20X8. Do not prepare financial statements
