MidStrata Limited decided

Case Study #1: MidStrata Limited decided, On September 1, 2015, to buy 80% of the shares outstanding of Saharah Inc. for $630,000. MidStrata will pay for this acquisition by using cash of $500,000 and issuing share capital for the remaining amount. The balances showing on the statement of financial position for the two companies at August 31, 2015, are as follows: MidStrata Saharah Assets Cash A/R Inventory Supplies Land Building and Equipment Accumulated Depreciation Total Assets 525,000 65,000 50,000 525,000 3,450,000 (865,000) 3,750,000 40,000 35,000 50,000 275,000 925,000 (125,000) 1,200,000 Liabilities Current Liabilities A/P 665,000 1,350,000 280,000 620,000 Bonds Payable Shareholders' Equity Common Shares 950,000 785,000 3,750,000 250,000 50,000 1,200,000 Total Liabilities and Shareholders' Equity After a review of the assets and liabilities, MidStrata determines that some of the assets of Saharah have fair values different from their carrying values. These items are listed beSaharah: Land has a fair value of $295,000. . The building has a fair value of $1,090,000. The remaining useful life of the building is 20 years. Brand value is $60,000. The brand has an indefinite life. During the 2017 fiscal year, the follows events occurred: 1. On March 1, 2017, Saharah sold land to MidStrata for $390,000, which had a carrying value of $275,000. MidStrata paid for this with $90,000 cash and a note payable for the difference, This note pays interest at 10%, which is paid monthly 2. MidStrata sold inventory (included in MidStrata sales) to Saharah for $200,000. Profit margin on these sales is 25%. Saharah still has supplies on hand of $75,000 3. In 2016, Saharah had provided seat space on flights to MidStrata for a value of $500,000. This amount was included in sales for Saharah. Profit margin on these sales is 40%. At the end of August, 2016, MidStrata still had an amount of $200,000 in these prepaid seats that had not yet been used. (Mid Strata includes this in inventory.) 4. The brand name was found to be impaired and an impairment loss of $40,000 was recognized. Saharah Statement of Financial position August 31, 2017 MidStrata Assets Cash 490,000 A/R 85,000 Inventory 260,000 Note Receivable - MidStrata Investment in Saharah 630,000 Land 915,000 Building and Equipment 3,745,000 Accumulated Depreciation (1,865,000) Total Assets 4,260,000 10,000 25,000 80,000 300,000 1,610,000 (675,000) 1,350,000 Liabilities Current Liabilities A/P Bonds Payable Note Payable to Saharah 855,000 850,000 300,000 580,000 820,000 Shareholders' Equity Common Shares RE (deficit) Total Liabilities and Shareholders' Equity 1,080,000 1,175,000 4,260,000 250,000 (300,000) 1,350,000 Statement of Comprehensive Income Year Ended - August 31, 2017 MidStrata 6,560,000 Sales Gain on Sale of land Interest Income Saharah 1,540,000 115,000 15,000 1,670,000 1,030,000 125,000 Cost of Sales Depreciation and Amortization Expenses Interest Expenses Management Fees Other Expenses 6,560,000 4,980,000 250,000 15,000 565,000 5,810,000 750,000 1,040,000 2,195,000 (525,000) Net Income (Loss) Required: Calculate the balances for the follows consolidated balances of MidStrata assuming MidStrata uses the parent-company extension method approach: a) Goodwill at August 31, 2015 b) Retained earnings at August 31, 2017 c) Brand name, net, at August 31, 2017 Case Study #1: MidStrata Limited decided, On September 1, 2015, to buy 80% of the shares outstanding of Saharah Inc. for $630,000. MidStrata will pay for this acquisition by using cash of $500,000 and issuing share capital for the remaining amount. The balances showing on the statement of financial position for the two companies at August 31, 2015, are as follows: MidStrata Saharah Assets Cash A/R Inventory Supplies Land Building and Equipment Accumulated Depreciation Total Assets 525,000 65,000 50,000 525,000 3,450,000 (865,000) 3,750,000 40,000 35,000 50,000 275,000 925,000 (125,000) 1,200,000 Liabilities Current Liabilities A/P 665,000 1,350,000 280,000 620,000 Bonds Payable Shareholders' Equity Common Shares 950,000 785,000 3,750,000 250,000 50,000 1,200,000 Total Liabilities and Shareholders' Equity After a review of the assets and liabilities, MidStrata determines that some of the assets of Saharah have fair values different from their carrying values. These items are listed beSaharah: Land has a fair value of $295,000. . The building has a fair value of $1,090,000. The remaining useful life of the building is 20 years. Brand value is $60,000. The brand has an indefinite life. During the 2017 fiscal year, the follows events occurred: 1. On March 1, 2017, Saharah sold land to MidStrata for $390,000, which had a carrying value of $275,000. MidStrata paid for this with $90,000 cash and a note payable for the difference, This note pays interest at 10%, which is paid monthly 2. MidStrata sold inventory (included in MidStrata sales) to Saharah for $200,000. Profit margin on these sales is 25%. Saharah still has supplies on hand of $75,000 3. In 2016, Saharah had provided seat space on flights to MidStrata for a value of $500,000. This amount was included in sales for Saharah. Profit margin on these sales is 40%. At the end of August, 2016, MidStrata still had an amount of $200,000 in these prepaid seats that had not yet been used. (Mid Strata includes this in inventory.) 4. The brand name was found to be impaired and an impairment loss of $40,000 was recognized. Saharah Statement of Financial position August 31, 2017 MidStrata Assets Cash 490,000 A/R 85,000 Inventory 260,000 Note Receivable - MidStrata Investment in Saharah 630,000 Land 915,000 Building and Equipment 3,745,000 Accumulated Depreciation (1,865,000) Total Assets 4,260,000 10,000 25,000 80,000 300,000 1,610,000 (675,000) 1,350,000 Liabilities Current Liabilities A/P Bonds Payable Note Payable to Saharah 855,000 850,000 300,000 580,000 820,000 Shareholders' Equity Common Shares RE (deficit) Total Liabilities and Shareholders' Equity 1,080,000 1,175,000 4,260,000 250,000 (300,000) 1,350,000 Statement of Comprehensive Income Year Ended - August 31, 2017 MidStrata 6,560,000 Sales Gain on Sale of land Interest Income Saharah 1,540,000 115,000 15,000 1,670,000 1,030,000 125,000 Cost of Sales Depreciation and Amortization Expenses Interest Expenses Management Fees Other Expenses 6,560,000 4,980,000 250,000 15,000 565,000 5,810,000 750,000 1,040,000 2,195,000 (525,000) Net Income (Loss) Required: Calculate the balances for the follows consolidated balances of MidStrata assuming MidStrata uses the parent-company extension method approach: a) Goodwill at August 31, 2015 b) Retained earnings at August 31, 2017 c) Brand name, net, at August 31, 2017