Large Ltd. purchased 80% of Small Company on January 1, Year 6, for $620,000, when the...

Large Ltd. purchased 80% of Small Company on January 1, Year 6, for $620,000, when the statement of financial position for Small showed common shares of $430,000 and retained earnings of $130,000. On that date, the inventory of Small was undervalued by $43,000, and a patent with an estimated remaining life of five years was overvalued by $64,000.

Small reported the following subsequent to January 1, Year 6:

	Profit (Loss)	Dividends
Year 6	92,000	28,000
Year 7	(38,000)	13,000
Year 8	93,000	43,000

A test for goodwill impairment on December 31, Year 8, indicated a loss of $19,600 should be reported for Year 8 on the consolidated income statement. Large uses the cost method to account for its investment in Small and reported the following for Year 8 for its separate-entity statement of changes in equity:

Retained earnings, beginning	530,000
Profit	230,000
Dividends	(67,000)
Retained earnings, end	693,000

Required:

(a) Prepare the cost method journal entries of Large for each year (Years 6, 7, and 8).

(b) Compute the following on the consolidated financial statements for the year ended December 31, Year 8:

- (i) Goodwill

- (ii) Non-controlling interest on the statement of financial position

- (iii) Retained earnings, beginning of year

- (iv) Profit attributable to Large’s shareholders

- (v) Profit attributable to non-controlling interest

Expert Solution

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you.				Small Large

Cost of 80% investment		$ 620,000
Implied cost of 100% investment		$ 775,000

Ordinary shares	$ 430,000
Retained earnings	$ 130,000	$ 560,000
Acquisition differential – Jan. 1, Year 6		$ 215,000
Allocated:
Inventory	$ 43,000
Patents	$ (64,000)	$ (21,000)
Balance – goodwill		$ 236,000

	Balance			Balance
	Jan. 1 Year 6	Amortization Year 6 and 7	Year 8	Dec. 31 Year 8

Inventory	$ 43,000	$ 43,000
Patents	$ (64,000)	$ (25,600)	$ (12,800)	$ (25,600)
Goodwill	$ 236,000	$ -	$ 19,600	$ 216,400
	$ 215,000	$ 17,400	$ 6,800	$ 190,800

PART a
	Year 6		Year 7		Year 8
Investment in Small	$ 620,000
Cash		$ 620,000
Cash	$ 22,400		$ 10,400		$ 34,400
Dividend income		$ 22,400		$ 10,400		$ 34,400

PART b

(i) Goodwill		$ 216,400
(ii) Small’s ordinary shares		$ 430,000
Small’s retained earnings:
Beginning Retained Earning	$ 130,000
Year 6 Net Income	$ 92,000
Year 7 Net Income	$ (38,000)
Year 8 Net Income	$ 93,000
Year 6 Dividend	$ (28,000)
Year 7 Dividend	$ (13,000)
Year 8 Dividend	$ (43,000)	$ 193,000
Unamortized acquisition differential		$ 190,800
		$ 813,800
NCI Share 20%		$ 162,760

(iii)
Large’s retained earnings			$ 530,000
Beginning Retained Earning	$ 130,000
Year 6 Net Income	$ 92,000
Year 7 Net Income	$ (38,000)
Year 6 Dividend	$ (28,000)
Year 7 Dividend	$ (13,000)	$ 143,000
Small’s retained earnings, date of acquisition		$ (130,000)
Change since acquisition		$ 13,000
Less: cumulative amortization of acquisition differential		$ (17,400)
Adjusted change since acquisition		$ (4,400)
Large’s share (80%)			$ (3,520)
Consolidated retained earnings			$ 526,480

(iv)
Large’s profit		$ 230,000
Less: dividends from Small (43,000 x80%)		$ (34,400)
			$ 195,600
Small’s profit		$ 93,000
Less: amortization of acquisition differential		$ (6,800)
		$ 86,200
Large’s share (80%)			$ 68,960
Consolidated profit attributable to Large’s shareholders			$ 264,560

(v)
NCI on income statement (86,200 x 20%)			$ 17,240

ekkarill92 answered 2 years ago

On January 1, the Company issued $400,000 of 6%, 6-year bonds when the market rate of...

On January 1, the Company issued $400,000 of 6%, 6-year bonds when the market rate of interest was 8%. The bonds pay interest semiannually on June 30 and December 31. How much are the proceeds that Ryan will receive from the bond issue date?

On January 1, 2011, Parent Company Purchased 80% of the common stock of Subsidiary Company for...

On January 1, 2011, Parent Company Purchased 80% of the common stock of Subsidiary Company for $402,000. On this date, Subsidiary had total owners' equity of $440,000. Land was undervalued by $20,000, Equipment with a 5-year remaining life was undervalued by $15,000 and inventory was undervalued by $10,000. Any other excess of cost over book value is due to goodwill. Parent accounts for its investment in Subsidiary using the simple equity method. 1) Prepare the Determination and Distribution of Excess...

On January 1, 2020, Parent Company purchased 80% of the common stock of Subsidiary Company for...

On January 1, 2020, Parent Company purchased 80% of the common stock of Subsidiary Company for $320,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for Subsidiary Company were $50,000 and $10,000, respectively. Parent Company has used the simple equity method for recording the Subsidiary income and dividends. On January 1, 2020, the only tangible assets of Subsidiary that were undervalued were inventory and equipment....

Manitoba Ltd. Purchased 1,000 shares of Spectrum Company for $20 per share on January 1, Year...

Manitoba Ltd. Purchased 1,000 shares of Spectrum Company for $20 per share on January 1, Year 1. Manitoba chose to classify this equity investment as FVOCI. On December 31, Year 1, the market price of Spectrum's stock was $23. On March 1, Year 2, all 1,000 shares of Spectrums stock were sold for $24 per share. Under IFRS, on December 31, Year 1, the journal entry for this equity investment would include: a) A credit to other comprehensive income for...

On January 1, Year 1, Present Inc. purchased 80 percent of the outstanding voting shares of...

On January 1, Year 1, Present Inc. purchased 80 percent of the outstanding voting shares of Sunrise Co. for $3,000,000. On that date, Sunrise’s shareholders’ equity consisted of retained earnings of $1,500,000 and common shares of $1,000,000. Sunrise’s identifiable assets and liabilities had fair values that were equal to their carrying values on January 1, Year 1. Account balances for selected accounts for the Year 5 financial statements were as follows: Present Sunrise Property, plant, and equipment (net) $ 2,100,000...

On January 1, 2008, Bacil Company purchased 80 percent of the outstanding shares of Lou Company...

On January 1, 2008, Bacil Company purchased 80 percent of the outstanding shares of Lou Company at a cost of P910,000. On that date, Lou Company had P390,000 worth of outstanding shares and P650,000 worth of accumulated profits. For 2008, Bacil Company had income of P390,000 from its own operations and paid dividends of P130,000. For 2008, Lou Company reported a net income of P195,000 and paid dividends of P65,000. All of the assets and liabilities of Lou Company had...

36) On January 1, 2017, Pioneer Company purchased 80% of the common stock of Shipley Company...

36) On January 1, 2017, Pioneer Company purchased 80% of the common stock of Shipley Company for $600,000. At that time, Shipley’s stockholders’ equity consisted of the following: Common stock $220,000 Other contributed capital 90,000 Retained earnings 320,000 During 2017, Shipley distributed a dividend in the amount of $120,000 and at year-end reported a $320,000 net income. Any difference between implied and book value relates to subsidiary goodwill. Pioneer Company uses the equity method to record its investment. No impairment...

On January 1, 2010, Porter Company purchased an 80% interest in the capital stock of Salem...

On January 1, 2010, Porter Company purchased an 80% interest in the capital stock of Salem Company for $850,000. At that time, Salem Company had capital stock of $550,000 an retained earnings of $80,000. Differences between the fair value and the book value of the identifiable assets of Salem Company were as follows: Fair Value in Excess of Book Value Equipment............. $130,000 Land............. 65,000 Inventory............. 40,000 The book values of all other assets and liabilities of Salem Company were equal...

On January 1, 2018, Carvel Corp. issued five-year bonds with a face value of $620,000 and...

On January 1, 2018, Carvel Corp. issued five-year bonds with a face value of $620,000 and a coupon interest rate of 6%, with interest payable semi-annually. Assume that the company has a December 31 year end and records adjusting entries annually. Record the journal entries relating to the bonds on January 1, July 1, and December 31, assuming that when the bonds were sold, the market interest rate was 7%.

On March 31, Year 1, Big Ltd. purchased 1,500 (15% ownership) of the shares of Small...

On March 31, Year 1, Big Ltd. purchased 1,500 (15% ownership) of the shares of Small Ltd. at a price of $10 per share. On December 31, Year 1, Big’s year-end date, Small paid a dividend of $0.50 per share and reported net income for the year of $25,000, which was earned evenly over the year. On December 31, Year 1, the Small shares had a fair value of $14 per share. Required: Provide all journal entries to be made...

Question