Instructions:

1. This assignment must be completed in groups of 3 to 5

2. The assignment must be done on a spreadsheet, properly formatted and legibly printed

Part 1: Due on October 24, 2016

Question 1

On January 1, 2017, Panama Ltd. issued shares worth $1,120,000 to Savanna Ltd. to acquire 80% of Savannas outstanding shares. On the acquisition date, Savannas statement of financial position shows share capital of $420,000 and retained earnings of $777,000. At the acquisition date, all of Savannas identifiable assets and liabilities equaled their fair values with the exception of the following:

Inventories (fair value exceeded book value by $14,000)

Investments (book value exceeded fair value by $14,000)

Equipment (fair value exceeded net book value by $105,000)

Long-term Liabilities (fair value, $500,000, exceeded carrying value by $20,000)

At the acquisition date, Savannas accumulated depreciation account for the equipment had a balance of $805,000. As of the acquisition date, Savannas equipment had a remaining useful life of 8 years. The long-term liabilities had five years to maturity.

The financial statements for Panama and Savanna for the year ended December 31, 2020 are presented below.

Condensed Statement of Comprehensive Income

For the year ended December 31, 2020

Panama Ltd. Savanna Ltd.

Revenue:

Sales $ 3,238,200 $ 2,276,400

Royalties 210,000 -

Dividends 100,800 ____-___

3,549,000 2,276,400

Expenses:

Cost of sales 1,680,000 1,260,000

Other 784,000 575,400

2,464,000 1,835,400

Income before tax 1,085,000 441,000

Income tax expense 434,000 176,400

Net and comprehensive income $ 651,000 $ 264,600

Statement of Financial Position

As of December 31, 2020

Panama Ltd. Savanna Ltd.

Assets:

Current assets:

Cash $ 70,000 $ 28,000

Accounts receivable 210,000 224,000

Inventory 252,000 140,000

532,000 392,000

Noncurrent assets:

Land 440,000 -

Equipment 7,000,000 3,780,000

Accumulated depreciation, equipment (2,478,000) (1,736,000)

Investment in Savanna 1,120,000 ____-___

6,082,000 2,044,000

Total assets $ 6,614,000 $ 2,436,000

Liabilities and shareholders equity:

Current liabilities:

Accounts payable $ 630,000 $ 280,000

Noncurrent liabilities:

Loan payable 420,000 700,000

1,050,000 980,000

Shareholders equity:

Share capital 1,980,000 420,000

Retained earnings 3,584,000 1,036,000

5,564,000 1,456,000

$ 6,614,000 $ 2,436,000

Statement of Changes in Equity Retained Earnings Section

For the year ended December 31, 2020

Panama Ltd. Savanna Ltd.

Retained earnings, beginning of the year $ 3,353,000 $ 897,400

Net income 651,000 264,600

Dividends declared (420,000) (126,000)

Retained earnings, end of year $ 3,584,000 $ 1,036,000

Additional information:

Panama records its investments using the cost method and values NCI under the entity theory.

Both companies have a 40% income tax rate.

In 2017, Savanna sold all its investments for a gain of $50,000.

In 2018, Panama purchased equipment from Savanna for $120,000. At the sale date, Savannas net book value of the equipment was $90,000. Savanna had originally purchased the equipment for $140,000. After the purchase, Panama amortized the equipment at a rate of $20,000 per year for the remaining 6 years of its useful life, taking a full year of depreciation in 2018.

During 2019, Savanna purchased goods from Panama. At the end of 2019, Savanna still had $120,000 of these goods in inventory. Panama had earned a gross margin of 40% on the sale. The goods were sold to external customers in 2020.

During 2019, Panama purchased goods from Savanna. At the end of 2019, Panama still had $140,000 of these goods in inventory. Savanna had earned a gross margin of 40% on the sale. The goods were sold to external customers in 2020.

During 2020, Panama sold goods of $440,000 to Savanna. Panama earned a gross profit of $156,000 on this sale. At the end of 2020, Savanna still had $156,000 worth of goods in inventory.

During 2020, Savanna sold goods of $600,000 to Panama at a gross margin of 40%. At the end of 2020, Panama still had 30% of the goods in inventory.

During 2020, Panama received $120,000 in royalties from Savanna. Between January 1, 2017 and December 31, 2019, Panama received $600,000 in royalties from Savanna.

Required:

a) Prepare consolidated financial statements for the year ending December 31, 2020.

b) Determine the amount of consolidated net income attributable to non-controlling interest that would appear on the consolidated statement of profit or loss (i.e. income statement) as at December 31, 2020

assuming Panama used the identifiable net asset (INA) method to value the non-controlling interest on acquisition date.

c) If Panama had been accounting for its Investment in Savanna under the Equity method, calculate the following:

i. Investment in Savanna