Question
Pang Inc. (Pang), is a Canadian Controlled Private Company. You are the assistant controller of Pang. On January 1, 2013, after lengthy negotiations, Pang acquired
Pang Inc. (Pang), is a Canadian Controlled Private Company. You are the assistant controller of Pang. On January 1, 2013, after lengthy negotiations, Pang acquired 100% of the shares of Sing Co. (Sing) for $1,500,000. Management of Pang is very excited about the acquisition because of a new process developed by Sing that is expected to substantially improve Sings manufacturing capabilities. At the time of acquisition, Sing had applied for, but not yet received approval for, a patent for the new process.
As at January 1, 2013, Sing reported common stock of $ 100,000, and retained earnings of $569,800.
At the time of acquisition the management team analyzed the values of Sings assets and liabilities and determined that only three assets had fair values different from book values, as follows:
The fair value of inventory was based on selling prices for inventory close to the December 31, 2012, year-end. The values for depreciable capital assets were based on appraisals. The appraiser provided a range of values, and the values above are based on the average of the range of values. At the time of acquisition, the depreciable capital assets had a remaining useful life of nine years. You have determined that a parcel of land similar to, and adjacent to, the land held by Sing sold for $825,000 in November of 2013.
The acquisition of Sing was financed by debt. A review of the agreement with the bank indicates Pang must maintain a consolidated debt to tangible net worth ratio no greater than 3.6. Tangible net worth is defined as the book value of equity less the book value of intangible assets.
| Fair Value | Book Value | |
| Inventory | $1,044,100 | $803,300 |
| Depreciable capital assets | 929,200 | 1,133,500 |
| Land | 736,000 | 450,000 |
The financial statements of Pang and Sing at December 31, 2013, are included in Exhibit I.
The controller of Pang has asked you to prepare the consolidated financial statement for the year ended December 31, 2013 as well as answer some additional questions.
Required:
a) Prepare all the calculations necessary to complete the consolidated financial statements using the working paper approach as at December 31, 2013 using the template provided in Excel. Make sure you show your work and feel free to make as many different schedules/calculations as necessary.
| Exhibit I Financial Statements For the year ended December 31, 2013 | ||
| Balance Sheets | ||
| Pang | Sing | |
| Cash | $83,900 | $ |
| Market securities | 31,500 | |
| Accounts Receivable | 526,800 | 556,100 |
| Inventory | 672,120 | 883,600 |
| Depreciable Capital Assets | 1,700,400 | 1,246,800 |
| Land | 624,000 | 450,000 |
| Patent | 250,000 | |
| Investment in Sing | 1,500,000 | |
| Total Assets | $5,138,720 | $3,386,500 |
| Demand Loan | $ | $59,300 |
| Accounts Payable | 541,440 | 505,800 |
| Deferred Income taxes | 197,300 | 85,100 |
| Long term debt | 2,205,000 | 1,836,100 |
| Common shares | 150,000 | 100,000 |
| Retained Earnings | 2,044,980 | 800,200 |
| Total liabilities and equity | $5,138,720 | $3,386,500 |
| Income Statements and Statement of Retained Earnings | ||
| Pang | Sing | |
| Sales | $2,963,200 | $2,963,200 |
| Cost of sales | 1,847,400 | 1,847,400 |
| Gross margin | $1,115,800 | $1,115,800 |
| Selling, general and administration | 446,320 | 446,320 |
| Amortization | 188,900 | 188,900 |
| Other expenses net of other income | 38,600 | 38,600 |
| Net income before tax | $441,980 | $441,980 |
| Income tax | 111,500 | 111,500 |
| Net income | $330,480 | $330,480 |
| Opening retained earnings | 1,978,800 | 1,978,800 |
| Dividends | -264,300 | -264,300 |
| Ending retained earnings | $2,044,980 | $2,044,980 |
Use this worksheet:
| Consolidation | |||||||
| Note: Brackets indicate Credit balances - if it confuses you, take them out | |||||||
| Pang | Sing | Dr. | Cr. | Consolidated | |||
| Balance Sheet | |||||||
| Cash | 83,900 | - | |||||
| Marketable securities | 31,500 | - | |||||
| Accounts receivable | 526,800 | 556,100 | |||||
| Inventory | 672,120 | 883,600 | |||||
| Depreciable capital assets | 1,700,400 | 1,246,800 | |||||
| Land | 624,000 | 450,000 | |||||
| Patent | 250,000 | ||||||
| Goodwill | |||||||
| Investment in Sing | 1,500,000 | ||||||
| 5,138,720 | 3,386,500 | ||||||
| Demand loan | (59,300) | ||||||
| Accounts payable | (541,440) | (505,800) | |||||
| Deferred income taxes | (197,300) | (85,100) | |||||
| Long-term debt | (2,205,000) | (1,836,100) | |||||
| Common shares | (150,000) | (100,000) | |||||
| Retained earnings | (2,044,980) | (800,200) | |||||
| (5,138,720) | (3,386,500) | ||||||
| Income statement and RE | |||||||
| Sales | (2,963,200) | (1,945,800) | |||||
| Cost of sales | 1,847,400 | 1,052,400 | |||||
| Gross profit | (1,115,800) | (893,400) | |||||
| Selling, general and admin | 446,320 | 267,800 | |||||
| Amortization | 188,900 | 113,400 | |||||
| Other expenses net of other income | 38,600 | 10,600 | |||||
| Net income before tax | (441,980) | (501,600) | |||||
| Income tax | 111,500 | 125,400 | |||||
| Net income | (330,480) | (376,200) | |||||
| Opening RE | (1,978,800) | (569,800) | |||||
| Dividends | 264,300 | 145,800 | |||||
| Ending RE | (2,044,980) | (800,200) | |||||
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