(Preparation of a consolidated balance sheet on the date a subsidiary is purchased when less than 100% of the subsidiary is purchased, LO 1) On March 31, 2005 Popkum Inc. (Popkum) purchased 60% of the common shares of Saguay Ltd.

(Saguay) for $1,500,000. Popkum’s and Saguay’s balance sheets on March 31, 2005 just before the purchase were:

Management determined that the fair values of Saguay’s assets and liabilities were as follows:

Required

a. Prepare the journal entry that Popkum would prepare to record its purchase of Saguay’s shares.

b. Prepare the journal entry that Saguay would prepare to record its purchase by Popkum.

c, Calculate the amount of goodwill that would be reported on Popkum’s consolidated balance sheet on March 31, 2005.

d. Calculate the amount of non-controlling interest that would be. reported on the consolidated balance sheet on March 31, 2005.

e. Prepare Popkum’s consolidated balance sheet on March 31, 2005.

f. Calculate the current ratios and debt-to-equity ratios for Popkum, Saguay, and for the consolidated balance sheet. Interpret the differences between the ratios. g. Explain what the non-controlling interest on the balance sheet represents. How would you interpret it from the perspective of a shareholder of Popkum?
How would you interpret it from the perspective of a shareholder in Saguay? How would you interpret it from the perspective of a lender?

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Current assets Capital assets Total assets Balance Sheets As of March 31, 2005 Popkum Inc. $3,500,000 Saguay Ltd. $ 625,000 1,250,000 $1,875,000 3,250,000 $6,750,000 Current liabilities $1,350,000 $ 375,000 Non-current liabilities 1,250,000 500,000 Capital stock 2,000,000 250,000 Retained earnings 2,150,000 750,000 Total liabilities and shareholders' equity $6,750,000 $1,875,000