Question
On January 1, 20X8, Liv Ltd. (LL), a Canadian company, acquired 90% of Marcus Co. (MC), a foreign company for FC 623,200. At the acquisition
On January 1, 20X8, Liv Ltd. (LL), a Canadian company, acquired 90% of Marcus Co. (MC), a foreign company for FC 623,200. At the acquisition date, the carrying value of MC's net assets equaled their fair value except for the equipment, which had a carrying value of FC 800,000 and a fair value of FC 880,000. At the acquisition date, MC's equipment had a remaining useful life of 10 years. There was an FC 4,000 impairment of the goodwill which occurred evenly throughout 20X8.
Selected financial statements for LL and MC are presented below.
Liv Ltd.
Statement of Financial Position
As of December 31, 20X8
(in $ CDN)
Assets:
Noncurrent assets:
Plant and equipment, net 2,752,000
Investment in Marcus Co. 1,371,040
4,123,040
Current assets:
Inventory 1,376,000
Accounts receivable 700,000
Cash and cash equivalents 562,080
2,638,080
Total assets 6,761,120
Shareholders' Equity:
Share capital 1,376,000
Retained earnings 2,601,520
3,977,520
Liabilities:
Noncurrent liabilities:
Notes payable 1,860,000
Current liabilities:
Accounts payable and accrued liabilities 923,600
Total liabilities 2,783,600
Total shareholders' equity and liabilities 6,761,120
Liv Ltd.
Statement of Income
For the year ended December 31, 20X8
(in $ CDN)
Sales 16,472,000
Dividend income 180,080
16,652,080
Cost of sales 8,256,000
Other expenses* 7,124,000 15,380,000
Net income 1,272,080
*includes depreciation
LL declared and paid dividends of $928,000 CDN on December 31, 20X8.
Marcus Co.
Statement of Financial Position
(in FC)
Dec. 31, Jan. 1
20X8 20X8
Assets:
Noncurrent assets:
Equipment, net 720,000 800,000
Current assets:
Inventory 484,000 364,000
Accounts receivable 408,000 280,000
Cash 360,000 164,000
1,252,000 808,000
Total assets 1,972,000 1,608,000
Shareholders' equity:
Share capital 400,000 400,000
Retained earnings 390,000 146,000
790,000 546,000
Liabilities:
Noncurrent liabilities:
Notes payable 640,000 640,000
Current liabilities:
Accounts payable 542,000 422,000
Total liabilities 1,182,000 1,062,000
Total shareholders' equity and liabilities 1,972,000 1,608,000
Marcus Co.
Statement of Income
For the year ended December 31, 20X8
(in FC)
Sales 8,400,000
Cost of sales 5,304,000
Other expenses* 2,688,000 7,992,000
408,000
*includes depreciation
Marcus Co.
Statement of Changes in Equity - Retained Earnings Section
For the year ended December 31, 20X8
(in FC)
Retained earnings, January 1, 20X8 146,000
Net income 408,000
Dividends declared (164,000)
Retained earnings, December 31, 20X8 390,000
MC declared and paid FC164,000 in dividends on December 31, 20X8.
Selected Exchange Rates
January 1, 20X8 FC1 = $2.20 CDN
December 31, 20X8 FC1 = $2.44 CDN
Date when ending inventory was purchased FC1 = $2.38 CDN
Average rate for 20X8 FC1 = $2.32 CDN
Required:
- Prepare consolidated financial statements at December 31, 20X8 under each of the following assumptions:
i) the functional currency is $CAD, and
ii) the functional currency is the FC.
2.Assume that LL is a private company and reports under ASPE. LL uses the equity method to report its investment in MC. LL's functional currency is $CAD. Calculate LL's Investment in Marcus Co.'s account at December 31, 20X8. There is no need to prepare financial statements.
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Entrepreneurship
Authors: Andrew Zacharakis, William D Bygrave
5th Edition
1119563097, 9781119563099
