Bogart is a listed company that reports using IFRS and has a reporting date of 30 September 2020. Bogart purchased 18% of Lupin’s 100 million $1 ordinary shares for $43 million cash on 1 October 2018, gaining significant influence. Lupin had retained earnings of $85 million and no other components of equity, on the date of purchase.

The investment in Lupin was accounted for correctly in Bogart’s individual financial statements for the year ended 30 September 2019, when Lupin had retained earnings of $150 million and no other components of equity.

Bogart acquired control over Lupin on 1 October 2019, purchasing a further 67% of its ordinary shares. Cash consideration of $160 million was correctly included in calculating goodwill. Purchase consideration included 3 million of Bogart’s own $1 ordinary shares, with a fair value of $1.40 each. No accounting entries were posted for this share consideration.

Bogart derecognised the carrying amount of the existing 18% holding in Lupin and included it in calculating the goodwill of the business combination. The carrying amount of the net assets of Lupin was also used in calculating goodwill. The fair value of the existing 18% holding was $73 million at 1 October 2019 and the fair value of the identifiable net assets of Lupin was $285 million. The excess of the fair value of net assets over the carrying amount was due to equipment with a remaining useful life of ten years. The fair value of the non-controlling interest in Lupin on 1 October 2019 was $63.8 million and was included in calculating goodwill.

On 30 September 2020, Bogart purchased an additional 5% of the ordinary shares of Lupin. Consideration transferred for these additional shares was $19 million cash, which was expensed to the consolidated statement of profit or loss. On 30 September 2020, Lupin had retained earnings of $185 million and no other components of equity.

Required:

Discuss, with calculations, how the purchase of the additional share capital in Lupin should be accounted for in the consolidated financial statements. Show the accounting entry required to correct any error.     

Bogart is a listed company that reports using IFRS and has a reporting date of 30 September 2020. Bogart purchased 18% of Lupin’s 100 million $1 ordinary shares for $43 million cash on 1 October 2018, gaining significant influence. Lupin had retained earnings of $85 million and no other components of equity, on the date of purchase.

The investment in Lupin was accounted for correctly in Bogart’s individual financial statements for the year ended 30 September 2019, when Lupin had retained earnings of $150 million and no other components of equity.

Bogart acquired control over Lupin on 1 October 2019, purchasing a further 67% of its ordinary shares. Cash consideration of $160 million was correctly included in calculating goodwill. Purchase consideration included 3 million of Bogart’s own $1 ordinary shares, with a fair value of $1.40 each. No accounting entries were posted for this share consideration.

Bogart derecognised the carrying amount of the existing 18% holding in Lupin and included it in calculating the goodwill of the business combination. The carrying amount of the net assets of Lupin was also used in calculating goodwill. The fair value of the existing 18% holding was $73 million at 1 October 2019 and the fair value of the identifiable net assets of Lupin was $285 million. The excess of the fair value of net assets over the carrying amount was due to equipment with a remaining useful life of ten years. The fair value of the non-controlling interest in Lupin on 1 October 2019 was $63.8 million and was included in calculating goodwill.

On 30 September 2020, Bogart purchased an additional 5% of the ordinary shares of Lupin. Consideration transferred for these additional shares was $19 million cash, which was expensed to the consolidated statement of profit or loss. On 30 September 2020, Lupin had retained earnings of $185 million and no other components of equity.

Required:

Discuss, with calculations, how the purchase of the additional share capital in Lupin should be accounted for in the consolidated financial statements. Show the accounting entry required to correct any error.  

Bogart is a listed company that reports using IFRS and has a reporting date of 30 September 2020. Bogart purchased 18% of Lupin’s 100 million $1 ordinary shares for $43 million cash on 1 October 2018, gaining significant influence. Lupin had retained earnings of $85 million and no other components of equity, on the date of purchase.

The investment in Lupin was accounted for correctly in Bogart’s individual financial statements for the year ended 30 September 2019, when Lupin had retained earnings of $150 million and no other components of equity.

Bogart acquired control over Lupin on 1 October 2019, purchasing a further 67% of its ordinary shares. Cash consideration of $160 million was correctly included in calculating goodwill. Purchase consideration included 3 million of Bogart’s own $1 ordinary shares, with a fair value of $1.40 each. No accounting entries were posted for this share consideration.

Bogart derecognised the carrying amount of the existing 18% holding in Lupin and included it in calculating the goodwill of the business combination. The carrying amount of the net assets of Lupin was also used in calculating goodwill. The fair value of the existing 18% holding was $73 million at 1 October 2019 and the fair value of the identifiable net assets of Lupin was $285 million. The excess of the fair value of net assets over the carrying amount was due to equipment with a remaining useful life of ten years. The fair value of the non-controlling interest in Lupin on 1 October 2019 was $63.8 million and was included in calculating goodwill.

On 30 September 2020, Bogart purchased an additional 5% of the ordinary shares of Lupin. Consideration transferred for these additional shares was $19 million cash, which was expensed to the consolidated statement of profit or loss. On 30 September 2020, Lupin had retained earnings of $185 million and no other components of equity.

Required:

Discuss, with calculations, how the purchase of the additional share capital in Lupin should be accounted for in the consolidated financial statements. Show the accounting entry required to correct any error.     

Question 2:
Suppose that you are hired as a consultant to a large retail chain of apparel stores. As the company has grown, the CEO (also the owner) and the stock analysts who follow the company have noticed that the newly opened stores are not meeting sales projections. The CEO wants you to find out what is causing this problem and fix it. You do investigation and learn that the business development managers in the company are responsible for finding new store locations and negotiating leases with property owners. The company rewards the business development managers with stock options, provided that they open 5 new stores in a single year. Each new store is expected to have potential sales of at least $2 million per year. However those newly open stores can only achieve half of this amount. As a consultant, you are required to answer following questions.

1. Describe the principal-agent relationship. Who is making the bad

   decisions? Explain.

2. Do the agents have enough information to make a good decision?

   Explain.

3. Do the agents have incentives to make a good decision? Explain.

4. Based on your answers to (a), (b) and (c), discuss the centralization

   and decentralization solutions to resolve the principle-agent conflicts.

5. Based on your answer to (d), what solution will you propose. Justify

your choice.

Early in its fiscal year ending December 31, 2018, San Antonio Outfitters finalized plans to expand operations. The first stage was completed on March 28 with the purchase of a tract of land on the outskirts of the city. The land and existing building were purchased for $1,100,000. San Antonio paid $350,000 and signed a noninterest-bearing note requiring the company to pay the remaining $750,000 on March 28, 2020. An interest rate of 8% properly reflects the time value of money for this type of loan agreement. Title search, insurance, and other closing costs totaling $35,000 were paid at closing.

During April, the old building was demolished at a cost of $85,000, and an additional $65,000 was paid to clear and grade the land. Construction of a new building began on May 1 and was completed on October 29. Construction expenditures were as follows: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

May 1 $ 3,450,000 July 30 2,250,000

September 1 1,800,000

October 1 2,700,000

San Antonio borrowed $5,700,000 at 8% on May 1 to help finance construction. This loan, plus interest, will be paid in 2019. The company also had the following debt outstanding throughout 2018:

$3,500,000, 9% long-term note payable

$5,500,000, 6% long-term bonds payable

In November, the company purchased 10 identical pieces of equipment and office furniture and fixtures for a lump-sum price of $750,000. The fair values of the equipment and the furniture and fixtures were $595,000 and $255,000, respectively. In December, San Antonio paid a contractor $360,000 for the construction of parking lots and for landscaping.

Required: Determine the initial values of the various assets that San Antonio acquired or constructed during 2018. The company uses the specific interest method to determine the amount of interest capitalized on the building construction.  How much interest expense will San Antonio report in its 2018 income statement?

Early in its fiscal year ending December 31, 2018, San Antonio Outfitters finalized plans to expand operations. The first stage was completed on March 28 with the purchase of a tract of land on the outskirts of the city. The land and existing building were purchased for $1,200,000. San Antonio paid $400,000 and signed a noninterest-bearing note requiring the company to pay the remaining $800,000 on March 28, 2020. An interest rate of 9% properly reflects the time value of money for this type of loan agreement. Title search, insurance, and other closing costs totaling $40,000 were paid at closing.
   
During April, the old building was demolished at a cost of $90,000, and an additional $70,000 was paid to clear and grade the land. Construction of a new building began on May 1 and was completed on October 29. Construction expenditures were as follows: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

San Antonio borrowed $6,700,000 at 9% on May 1 to help finance construction. This loan, plus interest, will be paid in 2019. The company also had the following debt outstanding throughout 2018:

In November, the company purchased 10 identical pieces of equipment and office furniture and fixtures for a lump-sum price of $800,000. The fair values of the equipment and the furniture and fixtures were $675,000 and $225,000, respectively. In December, San Antonio paid a contractor $385,000 for the construction of parking lots and for landscaping.
  
Required:
1. Determine the initial values of the various assets that San Antonio acquired or constructed during 2018. The company uses the specific interest method to determine the amount of interest capitalized on the building construction.
2. How much interest expense will San Antonio report in its 2018 income statement?

arly in its fiscal year ending December 31, 2018, San Antonio Outfitters finalized plans to expand operations. The first stage was completed on March 28 with the purchase of a tract of land on the outskirts of the city. The land and existing building were purchased for $1,200,000. San Antonio paid $400,000 and signed a noninterest-bearing note requiring the company to pay the remaining $800,000 on March 28, 2020. An interest rate of 9% properly reflects the time value of money for this type of loan agreement. Title search, insurance, and other closing costs totaling $40,000 were paid at closing.
   
During April, the old building was demolished at a cost of $90,000, and an additional $70,000 was paid to clear and grade the land. Construction of a new building began on May 1 and was completed on October 29. Construction expenditures were as follows: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

San Antonio borrowed $6,700,000 at 9% on May 1 to help finance construction. This loan, plus interest, will be paid in 2019. The company also had the following debt outstanding throughout 2018:

In November, the company purchased 10 identical pieces of equipment and office furniture and fixtures for a lump-sum price of $800,000. The fair values of the equipment and the furniture and fixtures were $675,000 and $225,000, respectively. In December, San Antonio paid a contractor $385,000 for the construction of parking lots and for landscaping.
  
Required:
1. Determine the initial values of the various assets that San Antonio acquired or constructed during 2018. The company uses the specific interest method to determine the amount of interest capitalized on the building construction.
2. How much interest expense will San Antonio report in its 2018 income statement?
  

Early in its fiscal year ending December 31, 2018, San Antonio Outfitters finalized plans to expand operations. The first stage was completed on March 28 with the purchase of a tract of land on the outskirts of the city. The land and existing building were purchased for $820,000. San Antonio paid $210,000 and signed a noninterest-bearing note requiring the company to pay the remaining $610,000 on March 28, 2020. An interest rate of 6% properly reflects the time value of money for this type of loan agreement. Title search, insurance, and other closing costs totaling $21,000 were paid at closing.
   
During April, the old building was demolished at a cost of $71,000, and an additional $51,000 was paid to clear and grade the land. Construction of a new building began on May 1 and was completed on October 29. Construction expenditures were as follows: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

San Antonio borrowed $3,000,000 at 6% on May 1 to help finance construction. This loan, plus interest, will be paid in 2019. The company also had the following debt outstanding throughout 2018:

In November, the company purchased 10 identical pieces of equipment and office furniture and fixtures for a lump-sum price of $610,000. The fair values of the equipment and the furniture and fixtures were $426,000 and $284,000, respectively. In December, San Antonio paid a contractor $290,000 for the construction of parking lots and for landscaping.
  
Required:
1. Determine the initial values of the various assets that San Antonio acquired or constructed during 2018. The company uses the specific interest method to determine the amount of interest capitalized on the building construction.
2. How much interest expense will San Antonio report in its 2018 income statement?

Conscientiousness is a trait which implies discipline, dependability, and a heightened sense of personal responsibility. A school administrator wants to compare conscientiousness between high school and university students. He recruits 10 university and 15 high school students and measures their conscientiousness scores on a scale from 1 to 20 where 20 indicates greater conscientiousness. The university students have a mean conscientiousness score of 10 with a standard deviation of 1.5. The high school students have a mean conscientiousness score of 8 with a standard deviation of 1.7. In addition, standard error = .646. Is there a difference in conscientiousness between high school and university students?

a. Identify the IV, IV levels, and DV.

IV:
Levels:
DV:

b. Is this experiment a paired-samples or independent-samples design?

c. State null and alternative hypotheses in words.

H₀:
H₁:

d. Conduct a statistical test of the hypothesis

t( ) =

e. Decide whether to reject or retain the null hypothesis.

f. Interpret your results.

Conscientiousness is a trait which implies discipline, dependability, and a heightened sense of personal responsibility. A school administrator wants to compare conscientiousness between high school and university students. He recruits 10 university and 15 high school students and measures their conscientiousness scores on a scale from 1 to 20 where 20 indicates greater conscientiousness. The university students have a mean conscientiousness score of 10 with a standard deviation of 1.5. The high school students have a mean conscientiousness score of 8 with a standard deviation of 1.7. In addition, standard error = .646. Is there a difference in conscientiousness between high school and university students?

a. Identify the IV, IV levels, and DV.

IV:
Levels:
DV:

b. Is this experiment a paired-samples or independent-samples design?

c. State null and alternative hypotheses in words.

H₀:
H₁:

d. Conduct a statistical test of the hypothesis

t( ) =

e. Decide whether to reject or retain the null hypothesis.

f. Interpret your results.