Problem-7and15

Problem-7and15 - Problem 7 Calculation allocation and...

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Problem 7 Calculation, allocation, and amortization of acquisition differential Cost of 80% investment, Jan. 1, Year 3 1,600,000 Implied value of 100% investment 2,000,000 Carrying amounts of Least's net assets: Assets 3,000,000 Liabilities 1,500,000 Total shareholders' equity 1,500,000 Acquisition differential 500,000 Allocation: FV - BV Accounts receivable - 20,000 Inventories - 50,000 Plant and equipment (net) 35,000 Long-term liabilities 100,000 65,000 Balance – goodwill 435,000 Balance Amortization Balance Jan. 1 Dec. 31 Year 3 Years 3 to 8 Year 9 Year 9 Accounts receivable - 20,000 - 20,000 Inventories - 50,000 - 50,000 Plant and equipment (net) 35,000 26,250 4,375 4,375 (a) Long-term liabilities 100,000 100,000 Goodwill 435,000 52,200 8,700 374,100 (b) 500,000 108,450 (c) 13,075 (d) 378,475 Intercompany revenues and expenses Sales and purchases (2,000,000 + 1,500,000) 3,500,000 (e) Intercompany profits
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Before tax 40% tax After tax Loss on land, July 1, Year 7 realized in Year 9 – Most selling 50,000 20,000 30,000 (f) Opening inventory – Most selling (312,500 x 0.20) 62,500 25,000 37,500 (g) – Least selling (857,140 x 0.30) 257,142 102,857 154,285 (h) 319,642 127,857 191,785 (i) Ending inventory – Most selling (500,000 x 0.20) 100,000 40,000 60,000 (j) – Least selling (714,280 x 0.30) 214,284 85,714 128,570 (k) 314,284 (l) 125,714 188,570 Deferred income taxes – closing inventory (40,000 + 85,714) 125,714 (m) Calculation of consolidated retained earnings – Jan. 1 Year 9 Retained earnings of Most, Jan. 1, Year 9 (10,400,000 – 1,000,000 + 350,000) 9,750,000 Less: Profit in opening inventory (g) 37,500 9,712,500 Add: land loss (f) 30,000 Adjusted retained earnings 9,742,500 Retained earnings of Least, Jan. 1, Year 9 (2,300,000 – 400,000 + 100,000) 2,000,000 Retained earnings of Least at acquisition 1,000,000 Increase 1,000,000
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This note was uploaded on 10/23/2011 for the course BUS 3600 taught by Professor Akashrattan during the Spring '11 term at Langara.

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Problem-7and15 - Problem 7 Calculation allocation and...

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