Learning Outcome 2: Prepare consolidated financial statements that reflect the elimination and subsequent realization of intercompany transactions. Bright Pea Expansion Bright Pea (BP) was founded in Manitoba in 2001 by Nancy Rock. Over the years, BP has had significant growth and loyal following of customers. In the late 2000s, BP went through a major expansion, with Nancy adding awarehouse and retail space. In 2014, BPconverted its financial statements to conform with IFRS. AlthoughBP is a private company, Nancy felt that using IFRS would help her obtain global financing at a more competitive rate. She was also interested in expanding her business to Eastern Canada and felt this would help in doing so On January 1, 2019, BP acquired 60% of the common shares of Sprouting Farms (SF), located near St Anthony, Nfld. for $580,000 cash. At the time of acquisition, SF had retained earnings of $245,000 and common shares of $120,000. SF was also a private company following IFRS. All of SF's fair values approximated their carrying values except for the following: . Equipment with net book value of $320,000 (with accumulated depreciation of $80,000) had a fair value of $400,000 and 8 years remaining of depreciation, Inventory was undervalued by $15.000; and An unrecorded patent for a bike mechanism with a value of $40,000. BP expected that the life of the patent was 10 years. It is now December 31, 2020 and BPisgetting ready to prepare its consolidated financial statements for the year. The separate entity statements are shown in Exhibit I. Additional information required to prepare the consolidated statements is shown in Exhibit Il One of BP's shareholders is Nancy's older brother, Bart. Bart has often asked Nancy why BP prepares consolidated statements. Nancy told him she didn't have to but did because she was following IFRS. Her brother still doesn't understand why and any company needed to do so. Why bother? It seems like a lot of work and unneeded expense. Just give the shareholders all the financial statements and let them add things up and figure it out," Bart said. Nancy would like you to prepare a memo that helps her to explain this to her brother. Required: Prepare the consolidated financialstatements for December 31, 2020. You may use the attached consolidation worksheet or you may use the Direct Method If using the Direct Method please ensure you provide notes on how for December 31, 2020 and include any information you believe is needed to support the numbers in the financial statements Prepare a memo, using the template structure provided, to Nancy so that she can explain to her brother why BP prepares consolidated financial statements. Your memo should be a minimum of 500 words and a maximum of 1,000. Use examples form real Canadian companies to explain MEMO TEMPLATE To Recipient names From Whoever You Are CC Recipient names Date Date Subject Topic of Memo This is the content of your memo. You can break up the subject that you are addressing using headers Formatting of Memo When addressing longer topics, and you want to highlight content it helps the reader to have use bullets This will make content easier to read, Addresses the important facts, and You can also refer your appendix in the memo As you can see in Figure 1 of the Appendix you have significantly spent more than you wanted to Exhibit 1 Statement of Financial Position As at December 31, 2020 SE 35,000 15,000 332,000 cash Receivablas Notes Receivable Inventory Investment in SF Property. Plant and Equipment Accurnulated Depreciation Land Total Assets BP 140.000 80,000 35,000 850.000 580.000 750,000 450.000) 120,000 $1.905,000 500.000 (180,000) 40,000 $742.000 140,000 Current Libbilities Nole Payable Long turm Debt Common Sheros Retelined Cornings Total Llabilities & Equity 270,000 800.000 695.000 $1,905.000 200.000 35,000 40.000 120.000 347,000 $742.000 Stasternent of Income For the Year Ended Decernber 31, 2020 BP $1.000.000 300.000 (845.000) Revenue than Ravonude COGS Gain on sale of Leand Adruinistrative expenses Miscellaneous Expenses Depreciation Expenses Income Tax expensen Net Income SE $650,000 100,000 (525,000) 30,000 (15,000) (35,000) (50,000) (38.000 S 117.000 (50.000) ( 50,000) (90,000) (66.000) 99.000 SS $ EXHIBIT 2 P During 2020, BP sold $80,000 of inventory to SF, of which half remained unsold at year end. BP has a gross profit rate of 35%. BP sold $45,000 of inventory to SF of which $20,000 remained at the end of 2019. The note receivable is for the inventory purchases between SF and BP. During 2020, SF sold $65,000 of inventory to BP, of which 80% was sold by year end. SFhas a gross profit rate of 30%. SF didn't sell any inventory to BP during 2020 In 2019, BP sold equipment to SF for $100,000. The equipment is being depreciated over 10 years by SF. The equipment had a net book value of $80,000 and accumulated depreciation when sold of $40,000. In 2020, SF sold land to another company for $50,000. The land had an original cost of $20,000 and had appreciated in value due to the resurgence of the neighbourhood in St. John's during 2019 SF declared and paid a dividend of $25,000 in 2020. There was no dividend paid in 2019 Assume an income tax rate of 40% for both companies. Based on information known to SF and BP, they believe there is an impairment in the patent at the end of 2020 and that it is now only worth $15,000 BP consolidates following IFRS and wants to maximize any goodwill on its financial statements. . . . Learning Outcome 2: Prepare consolidated financial statements that reflect the elimination and subsequent realization of intercompany transactions. Bright Pea Expansion Bright Pea (BP) was founded in Manitoba in 2001 by Nancy Rock. Over the years, BP has had significant growth and loyal following of customers. In the late 2000s, BP went through a major expansion, with Nancy adding awarehouse and retail space. In 2014, BPconverted its financial statements to conform with IFRS. AlthoughBP is a private company, Nancy felt that using IFRS would help her obtain global financing at a more competitive rate. She was also interested in expanding her business to Eastern Canada and felt this would help in doing so On January 1, 2019, BP acquired 60% of the common shares of Sprouting Farms (SF), located near St Anthony, Nfld. for $580,000 cash. At the time of acquisition, SF had retained earnings of $245,000 and common shares of $120,000. SF was also a private company following IFRS. All of SF's fair values approximated their carrying values except for the following: . Equipment with net book value of $320,000 (with accumulated depreciation of $80,000) had a fair value of $400,000 and 8 years remaining of depreciation, Inventory was undervalued by $15.000; and An unrecorded patent for a bike mechanism with a value of $40,000. BP expected that the life of the patent was 10 years. It is now December 31, 2020 and BPisgetting ready to prepare its consolidated financial statements for the year. The separate entity statements are shown in Exhibit I. Additional information required to prepare the consolidated statements is shown in Exhibit Il One of BP's shareholders is Nancy's older brother, Bart. Bart has often asked Nancy why BP prepares consolidated statements. Nancy told him she didn't have to but did because she was following IFRS. Her brother still doesn't understand why and any company needed to do so. Why bother? It seems like a lot of work and unneeded expense. Just give the shareholders all the financial statements and let them add things up and figure it out," Bart said. Nancy would like you to prepare a memo that helps her to explain this to her brother. Required: Prepare the consolidated financialstatements for December 31, 2020. You may use the attached consolidation worksheet or you may use the Direct Method If using the Direct Method please ensure you provide notes on how for December 31, 2020 and include any information you believe is needed to support the numbers in the financial statements Prepare a memo, using the template structure provided, to Nancy so that she can explain to her brother why BP prepares consolidated financial statements. Your memo should be a minimum of 500 words and a maximum of 1,000. Use examples form real Canadian companies to explain MEMO TEMPLATE To Recipient names From Whoever You Are CC Recipient names Date Date Subject Topic of Memo This is the content of your memo. You can break up the subject that you are addressing using headers Formatting of Memo When addressing longer topics, and you want to highlight content it helps the reader to have use bullets This will make content easier to read, Addresses the important facts, and You can also refer your appendix in the memo As you can see in Figure 1 of the Appendix you have significantly spent more than you wanted to Exhibit 1 Statement of Financial Position As at December 31, 2020 SE 35,000 15,000 332,000 cash Receivablas Notes Receivable Inventory Investment in SF Property. Plant and Equipment Accurnulated Depreciation Land Total Assets BP 140.000 80,000 35,000 850.000 580.000 750,000 450.000) 120,000 $1.905,000 500.000 (180,000) 40,000 $742.000 140,000 Current Libbilities Nole Payable Long turm Debt Common Sheros Retelined Cornings Total Llabilities & Equity 270,000 800.000 695.000 $1,905.000 200.000 35,000 40.000 120.000 347,000 $742.000 Stasternent of Income For the Year Ended Decernber 31, 2020 BP $1.000.000 300.000 (845.000) Revenue than Ravonude COGS Gain on sale of Leand Adruinistrative expenses Miscellaneous Expenses Depreciation Expenses Income Tax expensen Net Income SE $650,000 100,000 (525,000) 30,000 (15,000) (35,000) (50,000) (38.000 S 117.000 (50.000) ( 50,000) (90,000) (66.000) 99.000 SS $ EXHIBIT 2 P During 2020, BP sold $80,000 of inventory to SF, of which half remained unsold at year end. BP has a gross profit rate of 35%. BP sold $45,000 of inventory to SF of which $20,000 remained at the end of 2019. The note receivable is for the inventory purchases between SF and BP. During 2020, SF sold $65,000 of inventory to BP, of which 80% was sold by year end. SFhas a gross profit rate of 30%. SF didn't sell any inventory to BP during 2020 In 2019, BP sold equipment to SF for $100,000. The equipment is being depreciated over 10 years by SF. The equipment had a net book value of $80,000 and accumulated depreciation when sold of $40,000. In 2020, SF sold land to another company for $50,000. The land had an original cost of $20,000 and had appreciated in value due to the resurgence of the neighbourhood in St. John's during 2019 SF declared and paid a dividend of $25,000 in 2020. There was no dividend paid in 2019 Assume an income tax rate of 40% for both companies. Based on information known to SF and BP, they believe there is an impairment in the patent at the end of 2020 and that it is now only worth $15,000 BP consolidates following IFRS and wants to maximize any goodwill on its financial statements