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发送时间: 2022年4月8日(星期五) 上午9:18

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主题: Answer

Question: The following balance sheets have been prepared as at December 31, Year 6, for Kay Corp. and Adams Ventures: Additional Information: • Kay acquired its 40% interest in Adams for $374,000 in Year 2, when Adams's retained earnings amounted to $184,000. The acquisition differential on that date was fully amortized by the end of Year6. • In Year 5, Kay sold land to Adams and recorded a gain of $74,000 on the transaction. Adams is still using this land. • The December 31, Year 6, inventory of Kay contained a profit recorded by Adams amounting to $49,000. • On December 31, Year 6, Adams owes Kay $43,000. • Kay has used the cost method to account for its investment in Adams. • Use income tax allocation at a rate of 40%, but ignore income tax on the acquisition differential. Required: (a) Prepare three separate balance sheets for Kay as at December 31, Year 6, assuming that the investment in Adams is a (i) control investment; (ii) joint operation and is reported using proportionately adjusted financial statements, and (iii) significant influence investment. (b) Calculate the debt-to-equity ratio for each of the balance sheets in part (a). Which reporting method presents the strongest position from a solvency point of view? Briefly explain. (c) Prepare the financial statements required for part (a) using the worksheet approach. Answer: (a) Cost of 40% investment in Adams Co. $374,000 Implied value of 100% investment in Adams Co. 935,000 Carrying amount of Adams Co.  Common shares $478,000  Retained earnings  184,000  662,000 Acquisition differential $273,000 NCI, date of acquisition (60% x 935,000) $561,000                                                                               (i)                     Control investment – full consolidation Intercompany profit:  Before Tax  After  tax  40%  tax Gain on land in Year 5 Kay Corp. selling $74,000 $29,600 $44,400 Closing inventory Year 6 Adams selling $49,000 $19,600 $29,400 Intercompany receivable/payable $43,000 Consolidated retained earnings Kay Corp.'s retained earnings December 31, Year 6 $731,500 Less: Unrealized closing inventory profit (44,400) 687,100 Adams' retained earnings: December 31, Year 6  $314,000 At acquisition  184,000 Increase  130,000 Less: Unrealized closing inventory profit  (29,400)  Acquisition differential amortization (273,000) (172,400) Kay Corp.'s percentage 40% (68,960) Kay Corp.'s consolidated retained earnings,  December 31, Year 6 $618,140 Non-controlling interest: (Method 1) Carrying amount of Adams Co.  Common shares $478,000  Retained earnings 314,000 792,000 Less: Unrealized closing inventory profit  (29,400) 762,600 Non-controlling interest's percentage  60% $457,560 Non-controlling interest: (Method 2)     NCI, date of acquisition                                                                                                     $561,000 Change in Adam's retained earnings since acquisition             (172,400) NCI's share                                                                                           x 60%                     (103,440)                                                                                                                                                $457,560       Kay Corp. Consolidated Balance Sheet at December 31, Year 6 Cash (74,000 + 37,000) $111,000 Accounts receivable (108,000 + 191,000 - 43,000) 256,000 Inventory (635,000 + 421,000 - 49,000) 1,007,000 Property and plant (1,428,000 + 921,000 - 74,000) 2,275,000 Deferred charge - income tax (29,600 + 19,600)  49,200 $3,698,200 Current liabilities (414,000 + 164,000 - 43,000) $535,000 Bonds payable (517,500 + 614,000) 1,131,500 Common shares   956,000 Retained earnings 618,140 Non-controlling interest 457,560 $3,698,200 (ii) Joint operation investment – proportionately adjusted financial statements     Intercompany receivable/payable (43,000 x 40%)             17,200 Intercompany profit                                                                                                                                                         Kay Corp. Consolidated Balance Sheet at December 31, Year 6 Cash (74,000 + [40% x 37,000]) $88,800 Accounts receivable (108,000 + [40% x 191,000] – 17,200) 167,200 Inventory (635,000 + [40% x 421,000] – 19,600) 783,800 Property and plant (1,428,000 + [40% x 921,000] – 29,600) 1,766,800 Deferred charge - income tax (11,840 + 7,840)  19,680 $2,826,280 Current liabilities (414,000 + [40% x 164,000] – 17,200) $462,400 Bonds payable (517,500 + [40% x 614,000]) 763,100 Common shares 956,000 Retained earnings  644,780 $2,826,280 (iii) Significantly influenced investment – equity method Refer to calculations under part (a) Investment in Adams Co. Ltd. January 1, Year 2 $374,000 Less: unrealized profit on land  (17,760) 356,240 Adams' retained earnings: December 31, Year 6 At acquisition Increase Less: unrealized closing inventory profit Kay Corp.'s percentage  40,240 Less: Acquisition differential amortization (273,000 x 40%) (109,200) Balance December 31, Year 6  $287,280 Kay Corp. Consolidated Balance Sheet at December 31, Year 6 Cash $74,000 Accounts receivable 108,000 Inventory 635,000 Investment in Adams Co. Ltd. 287,280 Property and plant 1,428,000 $2,532,280 Current liabilities $414,000 Bonds payable 517,500 Common shares 956,000 Retained earnings 644,780 $2,532,280 (b)                                                                        i                        ii                       iii      Debt                                              $1,666,500        $1,225,500           $931,500      Equity                                              2,031,700          1,600,780          1,600,780      Debt to equity ratio                              0.82 : 1              0.77 : 1                0.58:1 The third scenario for the significant influence investment shows the best solvency position i.e. the lowest debt to equity ratio since it does not include any of the debt of the associate. (c)  See below for summary of journal entries. i) Control Investment CONSOLIDATED FINANCIAL STATEMENT WORKING PAPER KAY CORPORATION CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, YEAR 6 Eliminations Kay Adams Dr. Cr. Consolidated Statement of Financial Position Cash  $ 74,000  $  37,000  $ -  $ -  $ 111,000 Accounts receivable 108,000 191,000 6 43,000 256,000 Inventory 635,000 421,000 4 49,000 1,007,000 Property and plant 1,428,000 921,000 5 74,000 2,275,000 Investment in Adams 374,000 2 457,560 1 113,360 0 4 29,400 3 792,000 5 44,400 Deferred charge - Income tax 4 19,600 49,200 5 29,600   $ 2,619,000  $1,570,000   $ 3,698,200 Current liabilities  $ 414,000  $ 164,000 6 43,000  $ 535,000 Bonds payable 517,500 614,000 1,131,500 Common shares 956,000 478,000 3 478,000 956,000 Retained earnings 731,500 314,000 1 113,360 618,140 3 314,000 Non-controlling interest 2 457,560 457,560   $ 2,619,000   $1,570,000   $ 3,698,200 .  $1,528,920  $1,528,920   ii) Joint Operation Investment Eliminations Kay Adams (100%) Adams (40%) Dr. Cr. Consolidation Statement of Financial Position Cash  $ 74,000  $ 37,000  $ 14,800  $ -  $ -  $ 88,800 Accounts receivable 108,000 191,000 76,400 5 17,200 167,200 Inventory 635,000 421,000 168,400 3 19,600 783,800 Investment in Adams 374,000 0 0 3 11,760 1 86,720 0 4 17,760 2 316,800 Deferred income tax asset 3 7,840 19,680 4 11,840 Property and plant 1,428,000 921,000 368,400 4 29,600 1,766,800   $ 2,619,000   $ 1,570,000  $ 628,000  $ 2,826,280 Current liabilities  $ 414,000  $  164,000  $ 65,600 5 17,200  $ 462,400 Bonds payable 517,500 614,000 245,600 763,100 Common shares 956,000 478,000 191,200 2 191,200 956,000 Retained earnings 731,500 314,000 125,600 1 86,720 644,780 2 125,600   $ 2,619,000   $ 1,570,000   $ 628,000  $ 2,826,280 .  $ 469,920  $ 469,920 iii) Significant Influence Investment Eliminations Kay Cost Method Adams (100%) Dr. Cr. Kay - Equity Method Statement of Financial Position Cash  $ 74,000  $ -  $ -  $ -  $ 74,000 Accounts receivable 108,000 0 108,000 Inventory 635,000 0 635,000 Property and plant 1,428,000 0 1,428,000 Investment in Adams Co. Ltd. 374,000 0 1 86,720 287,280   $ 2,619,000  $ -  $ 2,532,280 Current liabilities  $ 414,000  $ -  $ 414,000 Bonds payable 517,500 0 517,500 Common shares 956,000 0 956,000 Retained earnings 731,500 0 1 86,720 644,780 0   $ 2,619,000  $ -   $ 2,532,280 . $ 86,720  $86,720 0   JOURNAL ENTRIES                                                                                                                 Part a) i)                                                                                                                                       1    Retained earnings (note a)        113,360                                                                                      Investment in Adams                                                  113,360                                                   To adjust retained earnings to equity method at end of year                                                                                                                                                                                                       2    Investment in Adams                 457,560                                                                                      Non-controlling interest                                               457,560                                                   To establish non-controlling interest at end of year                                                                                                                                                                                                                   3    Common shares                        478,000                                                                                     Retained earnings                      314,000                                                                                      Investment in Adams                                                   792,000                                                   To eliminate subsidiary's shareholders' equity and                                                                     establish acquisition differential at end of Year 6                                                                                                                                                                                                                         4    Investment in Adams                 29,400                                                                                        Inventory                                                                       49,000                                                     Deferred income taxes              19,600                                                                                       To eliminate unrealized profits in ending inventory                                                                                                                                                                                                                       5    Investment in Adams                 44,400                                                                                        Property and plant                                                      74,000                                                     Deferred income taxes              29,600                                                                                       To eliminate unrealized profits in land                                                                                                                                                                                                                                           6    Accounts payable                      43,000                                                                                        Accounts receivable                                                    43,000                                                     To eliminate intercompany receivables and payables                                                           JOURNAL ENTRIES                                              Part a) ii)                                                                   1    Retained earnings (note b)        86,720                      Investment in Adams                                       86,720       To adjust retained earnings to equity method at end of year                                                                                   2    Common shares                       191,200                   Retained earnings                     125,600                    Investment in Adams                                       316,800       To eliminate subsidiary's shareholders' equity and establish acquisition differential at end of Year 6                                                                                   3    Investment in Adams                11,760                      Inventory                                                          19,600       Deferred income taxes             7,840                       To eliminate unrealized profits in ending inventory                                                                                   4    Investment in Adams                17,760                      Property and plant (net)                                   29,600       Deferred income taxes             11,840                     To eliminate unrealized profits in land                                                                                                   5    Accounts payable                     17,200                      Accounts receivable                                        17,200       To eliminate intercompany receivables and payables JOURNAL ENTRIES                                                                                                                 Part a) (iii)                                                                                                                                     1    Retained earnings                      86,720                                                                                        Investment in Adams (note b)                                    86,720                                                     To adjust retained earnings to equity method at end of year                                                                                                                                                                                                       Notes                                                                                                                                          a    Consolidated retained earnings, Dec. 31, Year 6                                                $ 618,140                   (= Kay's retained earnings, end of Year 6 under equity method)                                                        Kay's retained earnings, end of Year 6 under cost method                                    731,500                  Difference between cost and equity method, end of year                               $(113,360)                  b    Kay's retained earnings, end of Year 6 under equity method                          $644,780                   Kay's retained earnings, end of Year 6 under cost method                               731,500                  Difference between cost and equity method, end of year                                $ (86,720)      谢谢亲的回惠顾，期待您的下次光临！ 添加客服微信:bbwxnly，购买沟通交流so easy 欢迎咨询以下我们的一站式服务内容：课后习题解答查题｜文件文档解锁下载｜会员帐号包月月卡 Bartleby｜Bookrags｜brainly.com｜Coursehero｜Chegg｜eNotes｜Ebook|gradebuddy｜Grammerlly|Numerade ｜QuillBot｜Oneclass｜Studypool｜SaveMyEaxms｜Studymode｜ScholarOne｜SlideShare|SkillShare|Scribd｜SolutionInn｜Study.com｜Studyblue｜Termpaperwarehouse｜and more… 谢谢亲的支持，祝您学习愉快:)