The accountant of Patrick Ltd needs to prepare consolidated financial statements for Patrick Ltd at the end of financial year. Following information was available on 30 June 2020:
1) Patrick Ltd acquired 100 per cent interest in Sand Ltd for $790,000 on 1 July 2015. All assets and liabilities were fairly valued on the acquisition date. At the date of acquisition, the equity of Sand Ltd included:
Share capital $320,000
Reserve $160,000
Retained earnings $170,000
The balance of the investment account was $790,000 as shown in the Statement of Financial Position of Patrick Ltd on 30 June 2020.
2) The directors of Patrick Ltd believed that goodwill acquired was impaired by 15 per cent for the year ended 30 June 2020.
3) On 3 March 2020, Patrick Ltd sold inventory to Sand Ltd at a value of $164,000.
4) The above inventory had a cost of $117,000 for Patrick Ltd to produce. All inventories remained unsold in Sand Ltd on 30 June 2020. Patrick Ltd and Sand Ltd adopt the perpetual inventory system for inventory accounting. The income tax rate is 30%.
Required: (Narrations are required in this question)
a) Determine the amount of goodwill acquired.
b) Prepare relevant consolidation journal entries on 30 June 2020.
c) Explain accounting for goodwill acquired in a business combination.
In: Accounting
P18.8 (LO 2, 3) (Time Value, Gift Cards, Discounts) Presented below are two independent revenue arrangements for Colbert Company.
Instructions
Respond to the requirements related to each revenue
arrangement.
a. Colbert sells 3D printer systems. Recently, Colbert provided a special promotion of zero-interest financing for 2 years on any new 3D printer system. Assume that Colbert sells Lyle Cartright a 3D system, receiving a $5,000 zero-interest-bearing note on January 1, 2020. The cost of the 3D printer system is $4,000. Colbert imputes a 6% interest rate on this zero-interest note transaction. Prepare the journal entry to record the sale on January 1, 2020, and compute the total amount of revenue to be recognized in 2020.
b. Colbert sells 20 nonrefundable $100 gift cards for 3D printer paper on March 1, 2020. The paper has a standalone selling price of $100 (cost $80). The gift cards expiration date is June 30, 2020. Colbert estimates that customers will not redeem 10% of these gift cards. The pattern of redemption is as follows.
Redemption Total
March 31
50%
April 30
80%
June 30
85%
Prepare the 2020 journal entries related to the gift cards at March
1, March 31, April 30, and June 30.
In: Accounting
Question 11
In early February 2020, Indigo Corp. began construction of an addition to its head office building that is expected to take 18 months to complete. The following 2020 expenditures relate to the addition:
| Feb. 1 | Payment #1 to contractor | $105,000 | ||
| Mar. 1 | Payment to architect | 24,000 | ||
| July 1 | Payment #2 to contractor | 63,000 | ||
| Dec. 1 | Payment #3 to contractor | 186,000 | ||
| Dec. 31 | Asset carrying amount | $378,000 |
On February 1, Indigo issued a $105,000, three-year note payable at
a rate of 10% to finance most of the initial payment to the
contractor. No other asset-specific debt was entered into. Details
of other interest-bearing debt during the period are provided in
the table below:
| Other Debt Instruments Outstanding—2020 | Principal amount | ||
| 8%, 15-year bonds, issued May 1, 2005, matured May 1, 2020 | $303,000 | ||
| 7%, 10-year bonds, issued June 15, 2014 | $496,000 | ||
| 6%, 12-year bonds, issued May 1, 2020 | $303,000 | ||
What amount of interest should be capitalized for the fiscal year
ending December 31, 2020, according to IAS 23? (Do not
round intermediate calculations. Round capitalization rate to 2
decimal places, e.g. 52.75% and final answer to 0 decimal places,
e.g. 5,275.)
| Amount of interest | $ |
In: Accounting
3. (LESSOR ENTRIES FOR FINANCING LEASE WITH A GUARANTEED RESIDUAL)
The following facts pertain to a non-cancelable lease agreement between Ace Leasing Company and King Company, a lessee.
Commencement of Lease Date January 1, 2020
Annual lease payment due at the beginning of the year beginning with January 1, 2020 $137,171
Residual value of equipment at end of lease term, guaranteed by lessee $54,000
Book Value of Lease Equipment on LESSOR books $500,000
Lease term 6 years
Economic life of leased equipment 7 years
Fair Value of asset at January 1, 2020 $659,000
Lessor’s Implicit Rate 12% Lessee’s incremental borrowing rate 12%
The asset will revert to the lessor at the end of the lease term. You examined this lease from the Lessee prospective in problem #1. Based on the tests you found it was a financing lease. In this problem you will complete the LESSOR entries. You do not need to redo the tests – it is still a financing lease with a guaranteed residual
A. Prepare the entry on the Lessor’s book to record this Lease on 1/1/2020. You will need to compute the Lease Receivable debit, the CGS debit, the Equipment credit and the Sale Revenue credit to complete the entry.
B. Complete the entry to receive the first rental payment on 1/1/2020.
C. Prepare the interest revenue amortization schedule for the first two years and prepare the interest revenue entry for 12/31/2020.
In: Accounting
Flint Inc. uses a calendar year for financial reporting. The company is authorized to issue 9,000,000 shares of $12 par common stock. At no time has Flint issued any potentially dilutive securities. Listed below is a summary of Flint’s common stock activities. 1. Number of common shares issued and outstanding at December 31, 2018 2,160,000 2. Shares issued as a result of a 12% stock dividend on September 30, 2019 259,200 3. Shares issued for cash on March 31, 2020 2,190,000 Number of common shares issued and outstanding at December 31, 2020 4,609,200 4. A 2-for-1 stock split of Flint’s common stock took place on March 31, 2021.
Compute the weighted-average number of common shares used in
computing earnings per common share for 2019 on the 2020
comparative income statement.
|
shares |
Compute the weighted-average number of common shares used in
computing earnings per common share for 2020 on the 2020
comparative income statement.
| shares |
Compute the weighted-average number of common shares to be used
in computing earnings per common share for 2020 on the 2021
comparative income statement.
|
shares |
Compute the weighted-average number of common shares to be used
in computing earnings per common share for 2021 on the 2021
comparative income statement.
| shares |
In: Accounting
Exercise 16-15
Nash Inc. uses a calendar year for financial reporting. The
company is authorized to issue 8,880,000 shares of $12 par common
stock. At no time has Nash issued any potentially dilutive
securities. Listed below is a summary of Nash’s common stock
activities.
| 1. | Number of common shares issued and outstanding at December 31, 2018 |
2,090,000 |
||
| 2. | Shares issued as a result of a 12% stock dividend on September 30, 2019 |
250,800 |
||
| 3. | Shares issued for cash on March 31, 2020 |
2,170,000 |
||
| Number of common shares issued and outstanding at December 31, 2020 |
4,510,800 |
|||
| 4. | A 2-for-1 stock split of Nash’s common stock took place on March 31, 2021 |
a.) Compute the weighted-average number of common shares used in computing earnings per common share for 2019 on the 2020 comparative income statement.
b.) Compute the weighted-average number of common shares used in computing earnings per common share for 2020 on the 2020 comparative income statement.
c.) Compute the weighted-average number of common shares to be used in computing earnings per common share for 2020 on the 2021 comparative income statement.
d.) Compute the weighted-average number of common shares to be used in computing earnings per common share for 2021 on the 2021 comparative income statement.
In: Accounting
The audit team completed the field work on 22 July 2020. The audit report was signed on 5 August by Charles Kirby. The financial statements were signed by the BoD on the same day, which was subsequently released to shareholders on 12 August 2020. During the review of subsequent events, you noted the following material events:
1) Cook’s Furniture Ltd has purchased a property in Adelaide Australia on 20 July 2020 for AUD 3,200,000 and intended to use it as a showroom. The company borrowed AUD 2,000,000 to finance the purchase. The company plans to take the opportunity of the current low interest rate to expand its property acquisitions
. 2) The company applied for Wages Subsidy scheme on 4 April and was granted 70,000. On 7 August, the BoD received a letter from the government requesting the company to pay back the Wages Subsidy with interests citing the reason that the company did not qualify.
3) The company was experiencing delays in its supply chain from overseas suppliers from March to May 2020, which resulted longer lead times in filling customer orders. On 31 July, a customer filed a lawsuit against the company suing for damages of $300, 000. Because of the delay, this customer could not open business on time and suffered income loss. REQUIRED:
For each of the above subsequent event:
a) Explain the potential impact on the 2020 financial statements.
b) Discuss audit procedures that may verify the potential impact on the 2020 financial statements.
In: Accounting
Marin Inc. uses a calendar year for financial reporting. The company is authorized to issue 8,610,000 shares of $10 par common stock. At no time has Marin issued any potentially dilutive securities. Listed below is a summary of Marin’s common stock activities.
| 1. | Number of common shares issued and outstanding at December 31, 2018 |
1,920,000 |
||
| 2. | Shares issued as a result of a 10% stock dividend on September 30, 2019 |
192,000 |
||
| 3. | Shares issued for cash on March 31, 2020 |
2,060,000 |
||
| Number of common shares issued and outstanding at December 31, 2020 |
4,172,000 |
|||
| 4. | A 2-for-1 stock split of Marin’s common stock took place on March 31, 2021 |
Compute the weighted-average number of common shares used in computing earnings per common share for 2019 on the 2020 comparative income statement.
| shares |
eTextbook and Media
Compute the weighted-average number of common shares used in computing earnings per common share for 2020 on the 2020 comparative income statement.
| shares |
eTextbook and Media
Compute the weighted-average number of common shares to be used in computing earnings per common share for 2020 on the 2021 comparative income statement.
| shares |
eTextbook and Media
Compute the weighted-average number of common shares to be used in computing earnings per common share for 2021 on the 2021 comparative income statement.
| shares |
In: Accounting
C-Bay Inc.'s accounting year ends on December 31. During the following three years, its common shares outstanding changed as follows.
| 2022 | 2021 | 2020 | |
|---|---|---|---|
| Shares outstanding, January 1 | 150,000 | 120,000 | 100,000 |
| Sales of shares, April 1, 2020 | 20,000 | ||
| 25% stock dividend, July 1, 2021 | 30,000 | ||
| 2-for-1 stock split, July 1, 2022 | 150,000 | ||
| Shares sold, October 1, 2022 | 50,000 | ||
| Shares outstanding, December 31 | 350,000 | 150,000 | 120,000 |
Required
a. For purposes of calculating EPS at the end of each year, determine the number of shares outstanding. Hint: consider each reporting year separately.
| 2022 | 2021 | 2020 | |
|---|---|---|---|
| Number of shares |
b. For purposes of calculating EPS at the end of 2022, when comparative statements are being prepared on a three-year basis, determine the number of shares outstanding for each year.
| 2022 | 2021 | 2020 | |
|---|---|---|---|
| Number of shares |
c. Compute EPS for each year based on computations in part b. Assume net income is $375,000, $330,000, and $299,000, for years 2022, 2021, and 2020, respectively.
Note: Round earnings per share amounts to two decimal places.
| Basic EPS | Net Income Available to Common Stockholders |
Weighted Avg. Common Shares Outstanding |
Per Share |
|---|---|---|---|
| 2020 | |||
| 2021 | |||
| 2022 |
In: Accounting
On January 1, 2020, Galactus Corp. (lessor) entered into a noncancellable lease agreement with Blade Corp. (lessee) for machinery which was carried in Galactus’s accounting records at $2,265,000 and had a fair value of $2,400,000. Minimum lease payments under the lease agreement, which expires on December 31, 2029, total $3,550,000. Payments of $355,000 are due each January 1. The first payment was made on January 1, 2020 when the lease agreement was finalized. The interest rate of 10% which was stipulated in the lease agreement is the implicit rate set by the lessor. The effective interest method is being used. Blade expects the machine to have a ten-year life with no residual value, and be depreciated on a straight-line basis. Collectibility of the rentals is reasonably assured, and there are no important uncertainties surrounding the costs yet to be incurred by Galactus. Both entities are small private corporations that follow ASPE.
Instructions
a. From the lessee's viewpoint, what kind of lease is the above agreement? From the lessor's viewpoint, what kind of lease is the above agreement?
b. Ignoring income taxes, what should be the income reported by Galactus from the lease for calendar 2020?
c. Ignoring income taxes, what should be the expenses incurred by Blade from this lease for the calendar 2020?
d. What journal entries should be recorded by Blade Corp. on January 1, 2020?
e. What journal entries should be recorded by Galactus Corp. on January 1, 2020?
In: Accounting