Chapter 5 Problems

Chapter 5 Problems - Assignment Problems For Chapter 5 Page...

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Assignment Problems For Chapter 5 (The solutions for these problems are only available in the solutions manual that has been provided to your instructor.) Assignment Problem Five - 1 (Open Trial Balance - No Profits - NCI On Assets - Equity Method Calculations) On January 1, 2009, the Perry Company purchased 72 percent of the outstanding voting shares of the Styan Company for $3,975,000 in cash. On that date, the Styan Company had No Par Common Stock of $1,680,000 and Retained Earnings of $3,570,000. All of the Styan Company’s identifiable assets and liabilities had carrying values that were equal to their fair values except for: 1. Inventories which had fair values of $1,806,000 and carrying values of $2,037,000. 2. Buildings which had fair values that were $175,000 more than their carrying values and a remaining useful life of 20 years. 3. Land which had a fair value of $1,596,000 and a carrying value of $1,400,000. 4. A Patent with a nil carrying value and a fair value of $154,000. The patent has a remaining life of two years. 5. Long-Term Liabilities which had fair values that were $210,000 more than their carrying values and mature on December 31, 2018. Perry records the at acquisition non-controlling interest in Styan based on this interest’s share of the fair value of the identifiable net assets of Styan. The Balance Sheets of the Perry Company and the Styan Company as at December 31, 2011 were as follows: Perry and Styan Companies Balance Sheets As At December 31, 2011 Perry Styan Cash $ 175,000 $ 17,500 Current Receivables 910,000 140,000 Inventories 1,709,750 1,050,000 Current Assets $ 2,794,750 $1,207,500 Equipment (Net) 3,584,000 2,248,750 Buildings (Net) 3,727,500 2,187,500 Investment in Styan (Cost) 3,975,000 N/A Land 1,406,250 1,400,000 Total Assets $15,487,500 $7,043,750 Dividends Payable Nil $ 70,000 Current Liabilities $ 840,000 350,000 Long-Term Liabilities 3,587,500 3,064,000 Total Liabilities $4,427,500 $3,484,000 Shareholders’ Equity: Preferred Stock 280,000 No Par Common Stock 9,100,000 1,680,000 Retained Earnings 1,879,750 Total Equities Canadian Advanced Accounting (2nd IC Edition) - Assignment Problems Page 11
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The Income Statements of the Perry and Styan Companies for the year ending December 31, 2011 were as follows: Perry and Styan Companies Income Statements For The Year Ending December 31, 2011 Perry Styan Sales $3,800,000 $1,120,000 Other Revenues 62,400 200,000 Total Revenues $3,862,400 $1,320,000 Cost of Goods Sold $1,412,000 $ 623,000 Amortization Expense 525,000 175,000 Other Expenses 1,567,000 235,000 Total Expenses $3,504,000 $1,033,000 Income Before Results Of Discontinued Operations $ 358,400 $ 287,000 Results Of Discontinued Operations Nil ( 2,052,500) Net Income (Loss) $ ($1,765,500) Other Information: 1. In both of the years since Perry acquired control over Styan, the goodwill arising on this business combination transaction has been tested for impairment. No impairment was found in either 2009 or 2010. However, due to the large loss for 2011, the goodwill related to the purchase of Styan shares has a nil fair value on December 31, 2011. 2. Both Companies use the straight line method to calculate amortization charges. 3. In its single entity records, Perry uses the cost method to carry its Investment In Styan. 4. The Sales account in both Companies’ Income Statements include only sales of merchan- dise. All other income is accounted for in Other Revenues. 5. The Styan Company has sold no Land since January 1, 2009. 6. During 2011, dividends of $175,000 were declared and paid by Perry and dividends of
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Chapter 5 Problems - Assignment Problems For Chapter 5 Page...

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