On 1 July 2015, Jolly Ltd purchased 40% of the shares of Frog Ltd for $63,200. At that date, equity of Frog Ltd consisted of: Share capital $125,000 Retained earnings 11,000 At 1 July 2015, the identifiable assets and liabilities of Frog Ltd were recorded at amounts equal to their fair values. Information about income and changes in equity for both companies for the year ended 30 June 2018 is shown below: Jolly Ltd Frog Ltd Profit before tax $ 26,000 $ 23,500 Income tax expense (10,600) (5,400) Profit 15,400 18,100 Retained earnings (1/7/17) 18,000 16,000 33.400 34,100 Dividend paid (5,000) (4,000) Dividend declared (10,000) _(5,000) (15.000) (9,000) Retained earnings (30/6/18) $18.400 $ 25.100 Additional information (a) Jolly Ltd recognised the dividend revenue from Frog Ltd before receipt of cash. Frog Ltd declared a $8,000 dividend in June 2017, this being paid in August 2017. (b) On 31 December 2016, Frog Ltd sold to Jolly Ltd a motor vehicle for $12,000. The vehicle had originally cost Frog Ltd $18,000 and was written down to $10,000 for both tax and accounting purposes at time of sale to Jolly Ltd. Both companies depreciated motor vehicles at the rate of 20% p.a. on cost. (C) The beginning inventory of Frog Ltd included goods at $5,000 bought from Jolly Ltd; their cost to Jolly Ltd was $3,500. (d) The ending inventory of Jolly Ltd included goods purchased from Frog Ltd at a profit before tax of $2,400. (e) The tax rate is 30%. Required Prepare the journal entries in the records of Jolly Ltd to account for its investment in Frog Ltd in accordance with AASB 128 Investments in Associates and Joint Ventures for the year ended 30 June 2018. Jolly Ltd prepares consolidated financial statements. (Total = 15 marks) On 1 July 2015, Jolly Ltd purchased 40% of the shares of Frog Ltd for $63,200. At that date, equity of Frog Ltd consisted of: Share capital $125,000 Retained earnings 11,000 At 1 July 2015, the identifiable assets and liabilities of Frog Ltd were recorded at amounts equal to their fair values. Information about income and changes in equity for both companies for the year ended 30 June 2018 is shown below: Jolly Ltd Frog Ltd Profit before tax $ 26,000 $ 23,500 Income tax expense (10,600) (5,400) Profit 15,400 18,100 Retained earnings (1/7/17) 18,000 16,000 33.400 34,100 Dividend paid (5,000) (4,000) Dividend declared (10,000) _(5,000) (15.000) (9,000) Retained earnings (30/6/18) $18.400 $ 25.100 Additional information (a) Jolly Ltd recognised the dividend revenue from Frog Ltd before receipt of cash. Frog Ltd declared a $8,000 dividend in June 2017, this being paid in August 2017. (b) On 31 December 2016, Frog Ltd sold to Jolly Ltd a motor vehicle for $12,000. The vehicle had originally cost Frog Ltd $18,000 and was written down to $10,000 for both tax and accounting purposes at time of sale to Jolly Ltd. Both companies depreciated motor vehicles at the rate of 20% p.a. on cost. (C) The beginning inventory of Frog Ltd included goods at $5,000 bought from Jolly Ltd; their cost to Jolly Ltd was $3,500. (d) The ending inventory of Jolly Ltd included goods purchased from Frog Ltd at a profit before tax of $2,400. (e) The tax rate is 30%. Required Prepare the journal entries in the records of Jolly Ltd to account for its investment in Frog Ltd in accordance with AASB 128 Investments in Associates and Joint Ventures for the year ended 30 June 2018. Jolly Ltd prepares consolidated financial statements. (Total = 15 marks)
