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Chapter 6 Problems

# Chapter 6 Problems - Assignment Problems For Chapter 6 Page...

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Assignment Problems For Chapter 6 (The solutions for these problems are only available in the solutions manual that has been provided to your instructor.) Assignment Problem Six - 1 (Open Trial Balance - Profits - NCI At Fair Value) On December 31, 2009, the Pumpkin Company purchased 75 percent of the outstanding voting shares of the Squash Company for \$4,200,000 in cash. On that date, the Squash Company had No Par Common Stock of \$3,900,000 and Retained Earnings of \$600,000. All of the Squash Company’s identifiable assets and liabilities had carrying values that were equal to their fair values except for: 1. Inventories with fair values that were \$60,000 more than their carrying values. 2. Land which had a fair value that was \$300,000 greater than its carrying value. 3. Equipment which had a fair value of \$270,000 more that its carrying value. Its remaining useful life is 15 years with no expected salvage value. 4. Long-Term Liabilities which had fair values that were \$90,000 more than their carrying values and mature on December 31, 2015. Pumpkin’s management elects to record the acquisition date non-controlling interest at its fair value, measured on the basis of the price paid for the controlling interest. The Balance Sheets of the Pumpkin Company and the Squash Company as at December 31, 2013 were as follows: Pumpkin and Squash Companies Balance Sheets As At December 31, 2013 Pumpkin Squash Cash and Current Receivables \$ 1,620,000 \$ 930,000 Inventories 1,800,000 660,000 Current Assets \$ 3,420,000 \$1,590,000 Long-Term Receivables 840,000 300,000 Plant and Equipment (Net) 4,500,000 2,700,000 Investment in Squash (Cost) 4,200,000 N/A Land 2,400,000 1,200,000 Total Assets \$15,360,000 \$5,790,000 Current Liabilities \$ 480,000 \$ 240,000 Long-Term Liabilities 660,000 390,000 Total Liabilities \$ 1,140,000 \$ 630,000 Shareholders’ Equity No Par Common Stock 10,200,000 3,900,000 Retained Earnings 4,020,000 1,260,000 Total Equities \$15,360,000 \$5,790,000 The Income Statements of the Pumpkin and Squash Companies for the year ending December 31, 2013 were as follows: Canadian Advanced Accounting (2nd IC Edition) - Assignment Problems Assignment Problems For Chapter 6 Page 18

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Pumpkin and Squash Companies Income Statements For The Year Ending December 31, 2013 Pumpkin Squash Sales \$5,610,000 \$1,770,000 Interest Revenue 84,000 30,000 Other Revenues 90,000 Nil Total Revenues \$5,784,000 \$1,800,000 Cost of Goods Sold \$3,900,000 \$1,260,000 Interest Expense 66,000 45,000 Other Expenses 690,000 240,000 Total Expenses \$4,656,000 \$1,545,000 Net Income \$1,128,000 \$ 255,000 Other Information: 1. In each of the years since Pumpkin acquired control over Squash, the goodwill arising on this business combination transaction has been tested for impairment. In 2011, a Good- will Impairment Loss of \$84,000 was recognized. No impairment was found in any of the other years since acquisition. 2. Both Companies use the straight line method to calculate amortization charges. 3. Pumpkin uses the cost method to carry its Investment in Squash. 4. During 2013, dividends of \$360,000 were declared and paid by Pumpkin and dividends of \$120,000 were declared and paid by Squash. 5. The Pumpkin Company manufactures machines with a five year life. Its Sales total in the Income Statement includes only sales of these machines. Intercompany sales of these machines are priced to provide Pumpkin with a 20 percent gross profit on sales prices in all the years under consideration. On December 31, 2011, Pumpkin sold machines it had
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