At the beginning of January 1st2007, the financial position of company Z and B are as follows:
On January 1st2007, Z purchased 70% of B by issuing 700,000 shares of common stock (1 dollars face value and 8 dollars market price). Note that B's PPE has a remaining life of 10 years at the purchase date, and it was overvalued (Book value higher than market value) by $500,000, Land was undervalued (Market value higher than book value) by 800,000, and patent has a remaining life of 10 years and undervalued by $1,000,000. Z also determines that B's brand name (Infinite useful life) has market value of $1,000,000. Company Z records the investment in Company B using equity method.
a. What are the journal entries of Z and B to book the transactions?
b. What does the balance sheet of Company Z, and the consolidated balance sheet look like right afterthe purchase？Fill out the table below (note that new accounts may be created due to the consolidation) and write down the consolidation journal entries
c. In 2007 and 2008 there were no transactions between Z and B. In 2017 B announced $2,000,000 net income and give cash dividend in the amount of $800,000. Note also small did not sell any of its long term assets. The financial statements of Z and B for 2018 are presented as below:
Please fill out the highlighted cells, write down the 5 steps of consolidation journal entries and produce consolidated financial statements
During 2009, the following transactions took place
1. Z sold a piece of land with cost of $1,500,000 to B for 2,000,000.
2. Z sold inventory to B for $4,500,000, which cost Z 3,600,000, by the yearend, 20% of the inventory was not sold to outsiders and remained in B's warehouse.
3. Z sold patent to B 10/01/2009, for $3,000,000, the patents value on book upon transaction was $1,000,000. Small kept the patent for 2009.
During 2010 the following transactions took place
1. Z sold inventory to B for $5,000,000, which cost Z $4,000,000. By the end of 2010, 70 percent of the products were sold for $4,900,000. Note that B use FIFO.
2. B sold the Patent they bough from Z for $4,000,000 in June 2010.
d. Please write down the adjusting (cleaning) journal entries for the internal transactions for 2009 and 2010
e. What is the investment income of Z for 2007? What is the balance of investment account by the end of 2007 for Z?
f. What is the amount of income that goes to non-controlling interests? What is the amount of consolidated net income? What is the balance of non-controlling interests by the end of 2008?
g. For year 2008, 2009, 2010, 2011, 2012 and 2013, B reported net income of $2,500,000, $2,500,000, $3,500,000, $3,000,000, $4,000,000. 3,500,000, assuming no upstream sales, what should the non-controlling interests' income be for the 6 years respectively?
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