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Equities and Liabilities






 

Ordinary shares 10, 000, 000

 

Retained Earnings (See part c) 15, 210, 000

 

Non-controlling interests (See Below) 2, 710, 000

 

Long Term Liabilities (6.6 M + 1.1 M) 7, 700, 000

 

Deferred Income Taxes (200K+100K) 300, 000

 

Current Liabilities (700K + 300K – 200K advances) 800, 000

 

36, 720, 000

 


Non-controlling Interests: (Method 1)

 

Devine – Carrying amount December 31, Year 5 10, 500, 000

Unrealized Profits – Upstream:

Land (240, 000)

Inventory (120, 000)

Unamortized acquisition differential 700, 000

10, 840, 000

25%

Non-controlling interest 2, 710, 000

 

Calculation of non-controlling interests – December 31, Year 5 (Method 2)

Non-controlling interests at date of acquisition (25% x [4, 800, 000 /.75) 1, 600, 000

Devine’s adjusted increase in retained earnings (a) 4, 440, 000

NCI’s share @ 25% 1, 110, 000

Non-controlling interest, December 31, Year 5 2, 710, 000

 

(e)

Non-controlling interest – at date of acquisition

- under implied value approach (25% x 6, 400, 000) 1, 600, 000

- using market value of Devine’s shares (20, 000 shares x $75) 1, 500, 000

Decrease in non-controlling interest 100, 000

Non-controlling interest, December 31, Year 3

- as previously calculated 2, 710, 000

- as per new calculation 2, 610, 000

 

Goodwill at December 31, Year 3

- as previously calculated 600, 000

- decrease due to change in non-controlling interest 100, 000

- as per new calculation 500, 000

 

Problem 7-2

Equipment gain

Before Tax 40% tax After tax

Year 2 sale – Sally selling 15, 000

* Depreciation Years 2 and 3 (3, 000 ´ 2) 6, 000

Balance December 31, Year 3 9, 000 3, 600 5, 400

Depreciation Year 4 3, 0001, 2001, 800 (a)

Balance December 31, Year 4 6, 0002, 400 (b) 3, 600

 

* Assuming the sale took place at the beginning of Year 2

 

(a) Calculation of consolidated profit – Year 4

 

Profit of Peggy 185, 000

Profit of Sally 53, 000

Add: Equipment gain realized (a) 1, 800

Adjusted profit 54, 800 (c)

Consolidated profit 239, 800

Attributable to:

Shareholders of Peggy 226, 100

NCI (25% x 54, 800) 13, 700

239, 800

(b) Peggy Company

Consolidated Income Statement

Year 4

 

Revenues (580, 000 + 270, 000) $850, 000

Miscellaneous expense (110, 000 + 85, 000) 195, 000

Depreciation expense (162, 000 + 97, 000 - (a) 3, 000) 256, 000

Income tax expense (123, 000 + 35, 000 + (a) 1, 200) 159, 200

Total expenses 610, 200

Consolidated profit 239, 800

Attributable to:

Shareholders of Peggy 226, 100

NCI (25% x 54, 800) 13, 700

239, 800

 

(c) Deferred income taxes - December 31, Year 4 (b) 2, 400

 

Problem 7-3

Intercompany profitssubsidiary selling

 

Before tax 40% tax After tax

Equipment

Sale, Sept. 30, Year 5 8, 000 3, 200 4, 800

Depreciation Year 5

(8, 000 / 5 ´ 3/12) 400 160 240 (a)

Balance, Dec. 31, Year 5 7, 600 3, 040 4, 560 (b)

Depreciation Year 6 (8, 000 / 5) 1, 600 640 960 (c)

Balance, Dec. 31, Year 6 6, 000 2, 400 3, 600

 

Building

Sale, Jan. 1, Year 6 42, 000 16, 800 25, 200

Depreciation Year 6 (42, 000 / 7) 6, 000 2, 400 3, 600 (d)

Balance, Dec. 31, Year 6 36, 00014, 40021, 600 (e)

 

Intercompany Rent

Year 5 (12, 000 ´ 3/12) 3, 000 (f)

 

Year 6 12, 000 (g)

 

Calculation of consolidated net income

Year 5 Year 6

Incorrectly reported income 120, 000 142, 000

Add: incorrect amount for NCI 32, 5005, 160

Incorrect amount for consolidated net income 152, 500 147, 160

Less: Net unrealized profits

Equipment (b) 4, 560

Building (e) 21, 600

Add: equipment profit realized (c) 960

(h) 4, 560 (i) 20, 640

Corrected consolidated net income 147, 940126, 520

Attributable to:

Shareholders of Parent 116, 580 126, 520

NCI (32, 500 - 25% x (h) 4, 560) 31, 360

NCI (5, 160 - 25% x (i) 20, 640) 00, 000

147, 940126, 520

 

Parent Company

Corrected Consolidated Income Statements

Years 5 and 6

 


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