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The following information relates to Questions 11-18 John Thronen is an analyst in the research department of an international securities firm. He is preparing a

The following information relates to Questions 11-18

John Thronen is an analyst in the research department of an international securities firm. He is preparing a research report on Topmaker, Inc., a publicly traded company that complies with IFRS.

On January 1, 2018, Topmaker invested $11 million in Blanca Co. debt securities (with a 5.0% stated coupon on par value, and interest payable each December 31). The par value of the securities is $10 million, and the market interest rate in effect when the bonds were purchased was 4.0%. Topmaker designates the investment as amortized cost. As of December 31, 2018, the fair value of the securities is $12 million.

Blanca Co. wants to raise $40 million in capital by borrowing against its financial receivables. Blanca plans to create a special-purpose entity (SPE), invest $10 million in the SPE, have the SPE borrow $40 million, and then use the funds to purchase $50 million of receivables from Blanca. Blanca meets the definition of control and plans to consolidate the SPE. Blanca's balance sheet is presented in Exhibit 1.

Exhibit 1Blanca Co. Balance Sheet at December 31, 2018 ($ millions)

Cash

20

Current liabilities

25

Accounts receivable

50

Noncurrent liabilities

30

Other assets

30

Shareholders' equity

45

Total assets

100

Total liabilities and equity

100

Also on January 1, 2018, Topmaker acquired a 15% equity interest with voting power in Rainer Co. for $300 million. Topmaker has representation on Rainer's board of directors and participates in Rainer's policymaking process.Thronen believes that Topmaker underestimated the goodwill and balance sheet value of its investment account in Rainer. To estimate these figures, Thronen gathers selected financial information for Rainer as of December 31, 2018 in Exhibit 2.The plant and equipment are depreciated on a straight-line basis and have 10 years of remaining life.

Exhibit 2Selected Financial Data for Rainer Co., Year Ending December 31, 2018 ($ millions)

Book Value

Fair Value

Revenue

1,740

N/A

Net income

360

N/A

Dividends paid

220

N/A

Plant and equipment

2,900

3,160

Total assets

3,170

3,430

Liabilities

1,830

1,830

Net assets

1,340

1,600

During 2018, Rainer sold $60 million in inventory to Topmaker for $80 million. In 2019, Topmaker resold the entire inventory to a third party.

Thronen is concerned about possible goodwill impairment resulting from expected changes in the industry effective at the end of 2019. He calculates the impairment loss based on the projected consolidated balance sheet data shown in Exhibit 3, assuming that the cash-generating unit and reporting unit of Topmaker are the same.

Exhibit 3Selected Financial Data for Topmaker, Inc., Estimated Year Ending December 31, 2019 ($ millions)

Carrying value of cash-generating unit/reporting unit

15,200

Recoverable amount of cash-generating unit/reporting unit

14,900

Fair value of reporting unit

14,800

Identifiable net assets

14,400

Goodwill

520

Finally, Topmaker announces its plan to increase its ownership interest in Rainer to 80% effective January 1, 2020. It will account for the investment in Rainer using the partial goodwill method. Thronen estimates that the fair market value of the Rainer's shares on the expected date of exchange is $2 billion, with the identifiable assets valued at $1.5 billion.

Question 11 (1 point)

The carrying value reported on the balance sheet of Topmaker's investment in Blanca's debt securities at December 31, 2018 is:

(HINT: look back to Chapter 10 bond calculation, same approach, you need to adjust by the amortization amount that would happen at the first year end, in order to do so it would be the difference between the cash and interest income ).

Question 11 options:

$11,000,000.

$10,940,000.

$12,000,000.

Question 12 (1 point)

Based on Exhibit 1 and Blanca's plans to borrow against its financial receivables, the consolidated balance sheet will show total assets of:

(HINT - consider consolidated reporting when there is an SPE)

Question 12 options:

$150,000,000.

$50,000,000.

$140,000,000.

Question 13 (1 point)

Topmaker's influence on Rainer's business activities can be best described as:

Question 13 options:

controlling.

significant.

shared control.

Question 14 (1 point)

Based on Exhibit 2, the goodwill included in Topmaker's purchase of Rainer is:

Question 14 options:

$60 million.

$99 million.

$21 million.

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