Question 2 (34.5 marks)

A- The income statement of Panama Corporation showed a net income of $3,500,000 for the year ended December 31, 2020, before recording any income from its 85% owned subsidiary; Salgado. The income statement of Salgado for 2020 showed a net income of $700,000. During 2020, an intercompany sale of a truck resulted in a gain of $35,000, and the truck was assumed to have a four-year remaining useful life with no residual value. The truck is depreciated on a Straight-line basis.

Required:

1. Calculate Panama's consolidated net income for 2020, and controlling share of consolidated net income for 2020, assuming it was a downstream sale,

2. Calculate Panama's consolidated net income for 2020, and controlling share of consolidated net income for 2020, assuming it was an upstream sale

3. Comment on the results, to indicate the difference between downstream sale and upstream sale. (12 Marks)

B- Penguin Enterprises owns 75% of the outstanding voting stock of Seagull, which was purchased in 2001 at a cost equal to 75% of the book value of Seagull 's net assets (At that date, the fair value and book value of Seagull 's net assets were equal.) Separate company income statements accounts for Penguin and Seagull for the year ended December 31, 2020 are summarized as follows:

Penguin Seagull

Sales Revenue $6,000,000 $2,000,000

Cost of Goods Sold (4,000,000) (1,000,000)

Expenses (1,125,000) (500,000)

During 2020, the companies agreed to sell inventory to each other as needed at a markup of 10% of cost. Penguin sold merchandise that cost $250,000 to Seagull for $275,000, and Seagull sold inventory that cost $200,000 to Penguin for $220,000. Half of this merchandise remained in each company's inventory at December 31, 2020.

Required:

1. Determine Penguin 's income from Seagull for 2020.
2. Prepare a consolidated income statement for Penguin Corporation and Subsidiary for 2020. (9 Marks)

C- The following import and export transactions relate to Nour Corporation (a U.S. company) and its unaffiliated Mexican companies:

November 11, 2019 Purchased inventory for 150,000 pesos on account. Invoice denominated in pesos.

November 30, 2019 Sold 60% of inventory acquired on 11/11/19 for 120,000 pesos on account. Invoice denominated in pesos.

January 5, 2020 Acquired and paid the 150,000 pesos owed to the Mexican supplier.

January 15, 2020 Collected the 120,000 pesos from the Mexican customer and immediately converted them into U.S. dollars.

The following exchange rates apply:

Date Rate

November 11 $.11 = 1 peso

November 30 $.12 = 1 peso

December 31 $.13 = 1 peso

January 5 $.14 = 1 peso

January 15 $.15 = 1 peso

Required:

1. Prepare the required journal entries at Nour Corporation to record the previous transactions.
2. Determine the amount of Accounts Payable that will be included on the December 31, 2019 balance sheet of Nour Company.

Did the U.S. dollar strengthen or weaken from November to January and what are the implications for Nour business? Prove your answer. (13.5 Marks)