Required: In worksheet Q4 AD schedules a) Assume that CCC uses the identifiable net assets (INA) method to value the non- controlling interest (NCI). Use the acquisition method to allocate the acquisition differential and determine goodwill arising on acquisition. (2 marks) b) Assume that CCC uses the fair value enterprise (FVE) method to value the NCI. Use the acquisition method to allocate the acquisition differential and determine goodwill arising on acquisition. (2 marks) c) Based on the solution to part (a) (where CCC uses the INA method to value the NCI), prepare an acquisition differential and impairment schedule for 20x7. Provide references for each line in the AD schedule that will be used to reference through to the consolidated financial statements. (2 marks) In worksheet Q4 Interco transactions d) Prepare a list of all intercompany transactions and balances that are pertinent to the case facts and should be eliminated upon consolidation. Hint: There are eight intercompany transactions that should be eliminated, seven of which have two applicable parts (for example, note receivableote payable = one intercompany transaction). (0.5 marks) In worksheet Q4 Interco transactions d) Prepare a list of all intercompany transactions and balances that are pertinent to the case facts and should be eliminated upon consolidation. Hint: There are eight intercompany transactions that should be eliminated, seven of which have two applicable parts (for example, note receivableote payable = one intercompany transaction). (0.5 marks) e) Calculate all unrealized and realized intercompany profits. (2.5 marks) Provide references for each line in both the schedule of intercompany transactions and the schedule of unrealized/realized intercompany profits that will be used to reference through to the consolidated financial statements. Include a calculation of the total deferred tax asset/liability. Indicate whether the calculated figure is an asset or a liability. In worksheet Q4 Consol. SCI & RE For parts (f) and (g), assume that CCC uses the INA method to value the NCI. Calculations done in earlier sections of Q4 do not need to be redone on these worksheets. f) Prepare CCC's consolidated statement of comprehensive income for the year ended December 31, 20X7. Show the allocation between the parent and NCI. Include references to your supporting calculations, which should be the references in the supporting schedules prepared in parts (a) through (e) of Question 4. (6 marks) Note: From the Project Data file, copy and paste the template in the worksheet titled Q4 Consolidated CI 20X7" into your project submission. Do not show your work in the Project Data file. Prepare CCC's consolidated statement of retained earnings for the year ended December 31, 20x7. (1 mark) In worksheet Q4 Consol. SFP & NCI g) Calculate the NCI on the statement of financial position as at December 31, 20x7. (1 mark) Prepare CCC's consolidated statement of financial position as at December 31, 20X7. Include references to your supporting calculations, which will typically be the references in the supporting schedules prepared in parts (a) through (h) of Question 4. (4 marks) Note: From the Project Data file, copy and paste the template in the worksheet titled "Q4 Consolidated SFP 20X7" into your project submission file. Do not show your work in the Project Data file. PROJECT 1 (42 MARKS) Advanced Financial Reporting has two projects. Project 1 is due at the end of Week 3 and covers material from Weeks 1 to 3. Project 2 is due at the end of Week 5 and focuses on material from Weeks 4 and 5. Before beginning work on the project, refer to the Project Formatting document for instructions on formatting and submitting the required work. Project 1 consists of four independent questions based on a common set of case facts. As this is a comprehensive case, it is recommended that you work on it as you read through the Student Notes and study materials for each week. Do not wait until the week in which this project is due to begin working on your submission. As you read through the Student Notes, make note of any relevant material that pertains to specific events or transactions in the case. Working through the project will assist you in preparing for the final exam. As a general rule, record the journal entries pertaining to the identified transactions in the same order as they arise in the supporting narrative. Support the journal entries with a brief explanation as to their nature. At the end of Week 3, you will be required to create and submit one Excel file for your answers to Questions 1 to 4. It should contain eight worksheets named as follows: 1. Q1(a) JEs and calcs 2. Q1(b) JEs and calcs 3. Q2 AD schedule 4. Q3 Consol. SFP 20X6 5 04 AD schedules 7. Q4 Consol. SCI & RE 8. Q4 Consol. SFP & NCI The Project Data file provided for you contains information that you may use to help you complete certain questions. You will be directed to this file as required in the questions below. Canaan's Curios Corp. Canaan's Curios Corp. (CCC) is a company located in Western Canada that reports its financial results in accordance with IFRS. On December 31, 20X6, CCC acquired common shares of Tymen Jungle Inc. (TJI). Four independent questions based on different quantities of shares acquired, but using the same financial results for TJI, are set out below. Tymen Jungle Inc. Statement of financial position As at December 31 (in '000s) Carrying value Fair value Remaining useful life/term to maturity 20X6 Cash Accounts receivable Inventory Land Building (net) Equipment (net) Patent Total assets 20x7 $ 68 75 74 325 285 232 30 $1,089 20X6 $ 35 48 62 175 300 400 30 $1,050 $ 68 164 345 380 142 N/A N/A 15 years 5 years 16 years Accounts payable $ 52 Notes payable 50 Long-term debt 300 Bonds payable 250 Common shares 180 Retained earnings 257 Total liabilities and equity $1,089 $ 37 0 400 250 180 183 $1.050 262 6 years Tymen Jungle Inc. Statement of comprehensive income For the year ended December 31, 20x7 (in '000s) Sales revenue Cost of goods sold Gross profit Sales, general, and administrative expenses Interest expense Depreciation and amortization expense $ 885 440 445 361 27 25 Other income Earnings before income tax expense Income tax expense Net income 32 135 167 33 $ 134 Intercompany transactions: CCC provided management services to TJI during the entire year. TJI paid $4,500 per month for this service. At December 31, 20X7, the amount owing for the services provided in December 20X7 remained unpaid. TJI rented a building to CCC for $7,000 per month. CCC rented the building for the entire year. At December 31, 20X7, CCC owed TJI $14,000 for November and December's rent. Land sale: On December 31, 20X7, CCC sold land to TJI for $150,000. CCC's net book value at time of sale was $100,000, which was the same as the estimated fair value at the acquisition date of the shares of TJI (December 31, 20X6). In consideration of the transfer, TJI paid $100,000 cash and signed a note payable to CCC for the $50,000 balance. The note is payable in full on December 31, 20X8. Interest at 5% per annum, which is the market rate of interest for an obligation of this nature, is first payable on December 31, 20X8. Inventory sales: During 20X7, CCC sold $125,000 of inventory to TJI. CCC's cost of the inventory was $95,000. 25% of these goods remained unsold by TJI as at December 31, 20X7. During 20X7, TJI sold goods that it had purchased for $150,000 to CCC for $210,000; 35% of these goods remained unsold by CCC as at December 31, 20x7. Equipment sale: On January 1, 20X7, TJI sold equipment to CCC for $70,000 cash. TJI's carrying value of the equipment, which had a remaining useful life of five years, was $44,000. Additional information: 1. Both companies pay income tax at a rate of 30%. 2. Both companies use the first in, first out (FIFO) cost-flow assumption to value their inventories. 3. Both companies depreciate their depreciable assets on a straight-line basis. 4. The fair value increment on the bonds is amortized using the straight-line method. 5. Both companies account for share-issuance costs using the retained earnings method.1 6. For impairment-testing purposes, CCC established that TJI is a cash-generating unit (CGU). 7. CCC and TJI only prepare accruals and other adjusting entries at year end. Question 4 (21 marks) Assume that when CCC acquired an interest in TJI on December 31, 20X6, CCC paid $350,000 cash to acquire 60% of TJl's outstanding common shares. CCC tested the CGU for impairment on December 31, 20X7, and goodwill was found to be impaired by $31,000. CCC's draft non-consolidated financial statements for the December 31, 20X7, year end are set out below: Canaan's Curios Corp. Draft statement of financial position As at December 31 (in '000s) Cash Accounts receivable Inventory Notes receivable Land Building (net) Equipment (net) Patent Investment Total assets 20X7 $ 481 588 190 60 450 803 1,000 450 350 $4,372 20X6 $ 511 698 128 0 550 850 1,250 450 350 $4,787 Accounts payable Notes payable Long-term debt Bonds payable Common shares Retained earnings Total liabilities and equity $ 72 0 1,310 500 830 1,660 $4,372 $ 65 0 1,500 500 830 1,892 $4,787 Canaan's Curios Corp. Draft statement of comprehensive income For the year ended December 31, 20X7 (in '000s) Sales revenue Cost of goods sold Gross profit Sales, general, and administrative expenses Interest expense Depreciation and amortization expense Other income Earnings before income tax expense Income tax expense Net income $3,500 1.969 1,531 1,042 248 77 164 170 334 66 $ 268 Required: In worksheet Q4 AD schedules a) Assume that CCC uses the identifiable net assets (INA) method to value the non- controlling interest (NCI). Use the acquisition method to allocate the acquisition differential and determine goodwill arising on acquisition. (2 marks) b) Assume that CCC uses the fair value enterprise (FVE) method to value the NCI. Use the acquisition method to allocate the acquisition differential and determine goodwill arising on acquisition. (2 marks) c) Based on the solution to part (a) (where CCC uses the INA method to value the NCI), prepare an acquisition differential and impairment schedule for 20x7. Provide references for each line in the AD schedule that will be used to reference through to the consolidated financial statements. (2 marks) In worksheet Q4 Interco transactions d) Prepare a list of all intercompany transactions and balances that are pertinent to the case facts and should be eliminated upon consolidation. Hint: There are eight intercompany transactions that should be eliminated, seven of which have two applicable parts (for example, note receivableote payable = one intercompany transaction). (0.5 marks) In worksheet Q4 Interco transactions d) Prepare a list of all intercompany transactions and balances that are pertinent to the case facts and should be eliminated upon consolidation. Hint: There are eight intercompany transactions that should be eliminated, seven of which have two applicable parts (for example, note receivableote payable = one intercompany transaction). (0.5 marks) e) Calculate all unrealized and realized intercompany profits. (2.5 marks) Provide references for each line in both the schedule of intercompany transactions and the schedule of unrealized/realized intercompany profits that will be used to reference through to the consolidated financial statements. Include a calculation of the total deferred tax asset/liability. Indicate whether the calculated figure is an asset or a liability. In worksheet Q4 Consol. SCI & RE For parts (f) and (g), assume that CCC uses the INA method to value the NCI. Calculations done in earlier sections of Q4 do not need to be redone on these worksheets. f) Prepare CCC's consolidated statement of comprehensive income for the year ended December 31, 20X7. Show the allocation between the parent and NCI. Include references to your supporting calculations, which should be the references in the supporting schedules prepared in parts (a) through (e) of Question 4. (6 marks) Note: From the Project Data file, copy and paste the template in the worksheet titled Q4 Consolidated CI 20X7" into your project submission. Do not show your work in the Project Data file. Prepare CCC's consolidated statement of retained earnings for the year ended December 31, 20x7. (1 mark) In worksheet Q4 Consol. SFP & NCI g) Calculate the NCI on the statement of financial position as at December 31, 20x7. (1 mark) Prepare CCC's consolidated statement of financial position as at December 31, 20X7. Include references to your supporting calculations, which will typically be the references in the supporting schedules prepared in parts (a) through (h) of Question 4. (4 marks) Note: From the Project Data file, copy and paste the template in the worksheet titled "Q4 Consolidated SFP 20X7" into your project submission file. Do not show your work in the Project Data file. PROJECT 1 (42 MARKS) Advanced Financial Reporting has two projects. Project 1 is due at the end of Week 3 and covers material from Weeks 1 to 3. Project 2 is due at the end of Week 5 and focuses on material from Weeks 4 and 5. Before beginning work on the project, refer to the Project Formatting document for instructions on formatting and submitting the required work. Project 1 consists of four independent questions based on a common set of case facts. As this is a comprehensive case, it is recommended that you work on it as you read through the Student Notes and study materials for each week. Do not wait until the week in which this project is due to begin working on your submission. As you read through the Student Notes, make note of any relevant material that pertains to specific events or transactions in the case. Working through the project will assist you in preparing for the final exam. As a general rule, record the journal entries pertaining to the identified transactions in the same order as they arise in the supporting narrative. Support the journal entries with a brief explanation as to their nature. At the end of Week 3, you will be required to create and submit one Excel file for your answers to Questions 1 to 4. It should contain eight worksheets named as follows: 1. Q1(a) JEs and calcs 2. Q1(b) JEs and calcs 3. Q2 AD schedule 4. Q3 Consol. SFP 20X6 5 04 AD schedules 7. Q4 Consol. SCI & RE 8. Q4 Consol. SFP & NCI The Project Data file provided for you contains information that you may use to help you complete certain questions. You will be directed to this file as required in the questions below. Canaan's Curios Corp. Canaan's Curios Corp. (CCC) is a company located in Western Canada that reports its financial results in accordance with IFRS. On December 31, 20X6, CCC acquired common shares of Tymen Jungle Inc. (TJI). Four independent questions based on different quantities of shares acquired, but using the same financial results for TJI, are set out below. Tymen Jungle Inc. Statement of financial position As at December 31 (in '000s) Carrying value Fair value Remaining useful life/term to maturity 20X6 Cash Accounts receivable Inventory Land Building (net) Equipment (net) Patent Total assets 20x7 $ 68 75 74 325 285 232 30 $1,089 20X6 $ 35 48 62 175 300 400 30 $1,050 $ 68 164 345 380 142 N/A N/A 15 years 5 years 16 years Accounts payable $ 52 Notes payable 50 Long-term debt 300 Bonds payable 250 Common shares 180 Retained earnings 257 Total liabilities and equity $1,089 $ 37 0 400 250 180 183 $1.050 262 6 years Tymen Jungle Inc. Statement of comprehensive income For the year ended December 31, 20x7 (in '000s) Sales revenue Cost of goods sold Gross profit Sales, general, and administrative expenses Interest expense Depreciation and amortization expense $ 885 440 445 361 27 25 Other income Earnings before income tax expense Income tax expense Net income 32 135 167 33 $ 134 Intercompany transactions: CCC provided management services to TJI during the entire year. TJI paid $4,500 per month for this service. At December 31, 20X7, the amount owing for the services provided in December 20X7 remained unpaid. TJI rented a building to CCC for $7,000 per month. CCC rented the building for the entire year. At December 31, 20X7, CCC owed TJI $14,000 for November and December's rent. Land sale: On December 31, 20X7, CCC sold land to TJI for $150,000. CCC's net book value at time of sale was $100,000, which was the same as the estimated fair value at the acquisition date of the shares of TJI (December 31, 20X6). In consideration of the transfer, TJI paid $100,000 cash and signed a note payable to CCC for the $50,000 balance. The note is payable in full on December 31, 20X8. Interest at 5% per annum, which is the market rate of interest for an obligation of this nature, is first payable on December 31, 20X8. Inventory sales: During 20X7, CCC sold $125,000 of inventory to TJI. CCC's cost of the inventory was $95,000. 25% of these goods remained unsold by TJI as at December 31, 20X7. During 20X7, TJI sold goods that it had purchased for $150,000 to CCC for $210,000; 35% of these goods remained unsold by CCC as at December 31, 20x7. Equipment sale: On January 1, 20X7, TJI sold equipment to CCC for $70,000 cash. TJI's carrying value of the equipment, which had a remaining useful life of five years, was $44,000. Additional information: 1. Both companies pay income tax at a rate of 30%. 2. Both companies use the first in, first out (FIFO) cost-flow assumption to value their inventories. 3. Both companies depreciate their depreciable assets on a straight-line basis. 4. The fair value increment on the bonds is amortized using the straight-line method. 5. Both companies account for share-issuance costs using the retained earnings method.1 6. For impairment-testing purposes, CCC established that TJI is a cash-generating unit (CGU). 7. CCC and TJI only prepare accruals and other adjusting entries at year end. Question 4 (21 marks) Assume that when CCC acquired an interest in TJI on December 31, 20X6, CCC paid $350,000 cash to acquire 60% of TJl's outstanding common shares. CCC tested the CGU for impairment on December 31, 20X7, and goodwill was found to be impaired by $31,000. CCC's draft non-consolidated financial statements for the December 31, 20X7, year end are set out below: Canaan's Curios Corp. Draft statement of financial position As at December 31 (in '000s) Cash Accounts receivable Inventory Notes receivable Land Building (net) Equipment (net) Patent Investment Total assets 20X7 $ 481 588 190 60 450 803 1,000 450 350 $4,372 20X6 $ 511 698 128 0 550 850 1,250 450 350 $4,787 Accounts payable Notes payable Long-term debt Bonds payable Common shares Retained earnings Total liabilities and equity $ 72 0 1,310 500 830 1,660 $4,372 $ 65 0 1,500 500 830 1,892 $4,787 Canaan's Curios Corp. Draft statement of comprehensive income For the year ended December 31, 20X7 (in '000s) Sales revenue Cost of goods sold Gross profit Sales, general, and administrative expenses Interest expense Depreciation and amortization expense Other income Earnings before income tax expense Income tax expense Net income $3,500 1.969 1,531 1,042 248 77 164 170 334 66 $ 268