Question
On January 1 st . 2022,X Company purchased 75% of the outstanding common shares and 50% of the outstanding preferred shares of Y Ltd. On
On January 1st. 2022,X Company purchased 75% of the outstanding common shares and 50% of the outstanding preferred shares of Y Ltd.
On January 1st. 2022 the balance sheet and fair values of Ys assets and liabilities were as follows:
Y COMPANY
Balance Sheet
As at January 1st. 2022
Book Values..Fair Values
Cash..$130,000.................$130,000
Accounts receivable 120,000 ...............110,000
Inventory.. 320,000................. 290,000
Capital assets(net).. 670,000
TOTAL ASSETS..$1,240,000
Current liabilities.$ 190,000..190,000
Long-term debt 300,000..300,000
Common shares..300,000
Preferred shares. 200,000**
Retained Earnings250,000
TOTAL OWNERSEQUITY..$1,240,000
**Par value of a preferred share was $100/share.
X Company paid $450,000 for the common shares The preferred shares paid cumulative dividends of 5% of their stated value but dividends for 2020 and 2021 were unpaid. The shares were redeemable, at the option of the issuer, at a premium of $8.00/share.
At January 1st. 2022, the capital assets of Y had a remaining useful life of ten years. Any unallocated acquisition differential would be treated as goodwill, which is assessed annually for impairment.
X accounts for its investment using the cost method and accounts for the non-controlling interest in its consolidated financial statements using the fair value enterprise method.
Required:-
(a) Prepare a schedule to split Ys shareholders equity section at January 1st.2022(6 marks)
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