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Year 5 Year 6






Miscellaneous revenues $750, 000$825, 000

Miscellaneous expense 399, 800 492, 340

Rent expense (52, 700 – (f) 3, 000) 49, 700

(64, 300 – (g) 12, 000) 52, 300

Depreciation expense (75, 000 – (a) 400) 74, 600

(80, 700 – (c) 1, 600 – (d) 6, 000) 73, 100

Income tax expense (81, 000 – (b) 3, 040) 77, 960

(94, 500 + (c) 640 – (e) 14, 400) 80, 740

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

Problem 7-8

Calculation, allocation, and amortization of acquisition differential

 

Cost of 80% investment in Spruce Ltd., Jan. 2, Year 1 2, 000, 000

Implied value of 100% 2, 500, 000

Carrying amounts of Spruce's net assets:

Common shares 500, 000

Retained earnings 1, 250, 000

Total shareholders' equity 1, 750, 000

Acquisition differential 750, 000

Allocation: FV – CA

Mineral rights 750, 000

Balance 0

 

Balance Amortization Balance

Jan. 1/1 Years 1 to 3 Year 4 Dec. 31/4

 

Mineral rights 750, 000 (a) 0 (b) 0750, 000 (c)

 

 

Intercompany sales and purchases 1, 000, 000 (d)

 

Unrealized intercompany profits

 

Before tax 40% tax After tax

Equipment Jan. 2/2 – Spruce selling

(500, 000 – 400, 000) 100, 000 (e)

Depreciation Years 2 and 3 40, 000

Balance, Dec. 31, Year 3 60, 000 24, 000 36, 000 (f)

Depreciation, Year 4 20, 000 8, 000 12, 000 (g)

Balance, Dec. 31, Year 4 40, 00016, 000 24, 000 (h)

 

Inventory Jan. 1, Year 4 – Spruce selling 200, 00080, 000120, 000 (i)

 

Inventory Dec. 31, Year 4 – Spruce selling 120, 00048, 000 72, 000 (j)

Intercompany bonds

Before tax 40% tax After tax

Cost of bonds Jan. 2, Year 4 242, 500

Carrying value of bonds purchased

Par 500, 000

Issue premium

(14, 000 – [14, 000 / 7 ´ 2]) 10, 000

510, 000

Intercompany portion 50%

255, 000

Gain to entity, Jan. 1, Year 4 12, 500 5, 000 7, 500 (k)

Interest elimination loss, Year 4* 2, 5001, 0001, 500

Net gain to entity, Dec. 31, Year 4 10, 0004, 0006, 000 (l)

Allocation:

Cost 242, 500

Par value (500, 000 ´ 50%) 250, 000

Gain to Spruce, Jan. 1, Year 4 7, 500 3, 000 4, 500

Interest elimination loss, Year 4* 1, 500 600 900

Net gain to Spruce, Dec. 31, Year 4 6, 0002, 4003, 600 (m)

Par value 250, 000

Carrying value 255, 000

Gain to Poplar, Jan. 1, Year 4 5, 000 2, 000 3, 000

Interest elimination loss, Year 4* 1, 000 400 600

Net gain to Poplar, Dec. 31, Year 4 4, 0001, 6002, 400 (n)

* 5 years remaining to maturity.

Spruce’s accumulated depreciation, date of acquisition 600, 000 (o)

Deferred income tax – Dec. 31, Year 4

 

Equipment (h) 16, 000

Inventory (j) 48, 000

Deferred income tax asset 64, 000

Less: deferred tax liability – bonds (l) 4, 000

Net deferred income tax asset 60, 000 (p)

Intercompany interest revenue and expense

 

Interest revenue – Spruce

8% ´ 250, 000 20, 000

Discount amortization (7, 500 / 5) 1, 500 21, 500

 

Interest expense – Poplar

8% ´ 500, 000 40, 000

Premium amortization (14, 000 / 7) 2, 000

38, 000

Intercompany portion 50% 19, 000 (q)

Interest elimination loss – Year 4 (before tax) 2, 500

 

Calculation of consolidated net income – Year 4

 

Income of Poplar 1, 100, 000

Less: Dividend from Spruce (250, 000 ´ 80%) 200, 000

900, 000

Add: bond gain (net) (n) 2, 400

Adjusted net income 902, 400

Income of Spruce 521, 500

Less: Amortization of acquisition differential (b) 0

Closing inventory profit (j) 72, 000

449, 500

 

Add: Opening inventory profit (i) 120, 000

Equipment profit realized (g) 12, 000

Bond gain (net) (m) 3, 600135, 600

Adjusted net income 585, 100 (r)

Consolidated net income 1, 487, 500

Attributable to:

Shareholders of Poplar 1, 370, 480

NCI (20% x 585, 100) 117, 020

1, 487, 500

(a) (i) Poplar Ltd.

Consolidated Income Statement

Year 4

 

Sales (4, 900, 000 + 2, 000, 000 – 1, 000, 000 (d)) 5, 900, 000

Gain on bond retirement (k) 12, 500

Total revenues 5, 912, 500

Cost of goods sold

(2, 400, 000 + 850, 000 – (d) 1, 000, 000 – (i) 200, 000 + (j) 120, 000) 2, 170, 000

Other expenses (962, 000 + 300, 000 – (g) 20, 000) 1, 242, 000

 

Interest expense (38, 000 – (q) 19, 000) 19, 000

Income tax expense

(600, 000 + 350, 000 + (i) 80, 000 – (j) 48, 000 + (g) 8, 000 + (l) 4, 000) 994, 000

Total expenses 4, 425, 000

Net income 1, 487, 500

Attributable to:

Shareholders of Poplar 1, 370, 480

NCI (20% x 585, 100) 117, 020

1, 487, 500

 

Calculation of consolidated retained earnings – Jan. 1, Year 4

Retained earnings of Poplar, Jan. 1, Year 4 10, 000, 000

Retained earnings of Spruce, Jan. 1, Year 4 2, 000, 000

At acquisition 1, 250, 000

Increase 750, 000

Less:

Opening inventory profit (i) 120, 000

Net equipment profit (f) 36, 000

Adjusted increase 594, 000 (s)

Poplar's ownership % 80% 475, 200

Consolidated retained earnings, Jan. 1 Year 4 10, 475, 200

 

(ii) Poplar Ltd.


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