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Question: Financial statements of Par Corp. and its

Financial Statements

of Par Corp. and its subsidiary Star Inc. on December 31, Year 12, are shown below:
Financial Statements of Par Corp. and its subsidiary Star Inc. on December 31, Year 12, are shown below: Other Information • On January 1, Year 5, the balance sheet of Star showed the following shareholders' equity: On this date, Par acquired 1,400 common shares of Star for a cash payment of $232,400. The fair values of Star's identifiable net assets differed from carrying amounts only with respect to the following: The plant had an estimated remaining useful life of five years on this date, and the long-term liabilities had a maturity date of December 30, Year 12. Any goodwill is to be tested annually for impairment. • Both Par and Star make substantial sales to each other at an intercompany selling price that yields the same gross profit as the sales they make to unrelated customers. Intercompany sales in Year 12 were as follows: • During Year 12, Par billed Star $2,000 per month in management fees. At year-end, Star had paid for all months except for December. • The January 1, Year 12, inventories of the two companies contained unrealized intercompany profits as follows: • The December 31, Year 12, inventories of the two companies contained unrealized intercompany profits as follows: • On July 1, Year 7, Star sold equipment to Par for $76,000. The equipment had a carrying amount in the records of Star of $56,000 on this date and an estimated remaining useful life of five years. • Goodwill impairment losses were recorded as follows: Year 7, $83,000; Year 9, $51,570; and Year 12, $20,560. • Assume a 40% corporate tax rate. • Par has accounted for its investment in Star by the cost method. • All dividends in arrears were paid by December 31, Year 11. Required: (a) Prepare, with all necessary calculations, the following: (i) Year 12 consolidated retained earnings statement (ii) Consolidated balance sheet as at December 31, Year 12 (b) How would the return on equity attributable to Par's shareholders for Year 12 change if Star's preferred shares were non-cumulative instead of cumulative? (c) On January 1, Year 13, Star issued common shares for $100,000 in cash. Because Par did not purchase any of these shares, Par's ownership percentage declined from 70 to 56%. Calculate the gain or loss that would be charged or credited to consolidated shareholders' equity as a result of this transaction.

Financial Statements of Par Corp. and its subsidiary Star Inc. on December 31, Year 12, are shown below: Other Information • On January 1, Year 5, the balance sheet of Star showed the following shareholders' equity: On this date, Par acquired 1,400 common shares of Star for a cash payment of $232,400. The fair values of Star's identifiable net assets differed from carrying amounts only with respect to the following: The plant had an estimated remaining useful life of five years on this date, and the long-term liabilities had a maturity date of December 30, Year 12. Any goodwill is to be tested annually for impairment. • Both Par and Star make substantial sales to each other at an intercompany selling price that yields the same gross profit as the sales they make to unrelated customers. Intercompany sales in Year 12 were as follows: • During Year 12, Par billed Star $2,000 per month in management fees. At year-end, Star had paid for all months except for December. • The January 1, Year 12, inventories of the two companies contained unrealized intercompany profits as follows: • The December 31, Year 12, inventories of the two companies contained unrealized intercompany profits as follows: • On July 1, Year 7, Star sold equipment to Par for $76,000. The equipment had a carrying amount in the records of Star of $56,000 on this date and an estimated remaining useful life of five years. • Goodwill impairment losses were recorded as follows: Year 7, $83,000; Year 9, $51,570; and Year 12, $20,560. • Assume a 40% corporate tax rate. • Par has accounted for its investment in Star by the cost method. • All dividends in arrears were paid by December 31, Year 11. Required: (a) Prepare, with all necessary calculations, the following: (i) Year 12 consolidated retained earnings statement (ii) Consolidated balance sheet as at December 31, Year 12 (b) How would the return on equity attributable to Par's shareholders for Year 12 change if Star's preferred shares were non-cumulative instead of cumulative? (c) On January 1, Year 13, Star issued common shares for $100,000 in cash. Because Par did not purchase any of these shares, Par's ownership percentage declined from 70 to 56%. Calculate the gain or loss that would be charged or credited to consolidated shareholders' equity as a result of this transaction.
Other Information • On January 1, Year 5, the balance sheet of Star showed the following shareholders' equity:
Financial Statements of Par Corp. and its subsidiary Star Inc. on December 31, Year 12, are shown below: Other Information • On January 1, Year 5, the balance sheet of Star showed the following shareholders' equity: On this date, Par acquired 1,400 common shares of Star for a cash payment of $232,400. The fair values of Star's identifiable net assets differed from carrying amounts only with respect to the following: The plant had an estimated remaining useful life of five years on this date, and the long-term liabilities had a maturity date of December 30, Year 12. Any goodwill is to be tested annually for impairment. • Both Par and Star make substantial sales to each other at an intercompany selling price that yields the same gross profit as the sales they make to unrelated customers. Intercompany sales in Year 12 were as follows: • During Year 12, Par billed Star $2,000 per month in management fees. At year-end, Star had paid for all months except for December. • The January 1, Year 12, inventories of the two companies contained unrealized intercompany profits as follows: • The December 31, Year 12, inventories of the two companies contained unrealized intercompany profits as follows: • On July 1, Year 7, Star sold equipment to Par for $76,000. The equipment had a carrying amount in the records of Star of $56,000 on this date and an estimated remaining useful life of five years. • Goodwill impairment losses were recorded as follows: Year 7, $83,000; Year 9, $51,570; and Year 12, $20,560. • Assume a 40% corporate tax rate. • Par has accounted for its investment in Star by the cost method. • All dividends in arrears were paid by December 31, Year 11. Required: (a) Prepare, with all necessary calculations, the following: (i) Year 12 consolidated retained earnings statement (ii) Consolidated balance sheet as at December 31, Year 12 (b) How would the return on equity attributable to Par's shareholders for Year 12 change if Star's preferred shares were non-cumulative instead of cumulative? (c) On January 1, Year 13, Star issued common shares for $100,000 in cash. Because Par did not purchase any of these shares, Par's ownership percentage declined from 70 to 56%. Calculate the gain or loss that would be charged or credited to consolidated shareholders' equity as a result of this transaction.
On this date, Par acquired 1,400 common shares of Star for a cash payment of $232,400. The fair values of Star's identifiable net assets differed from carrying amounts only with respect to the following: The plant had an estimated remaining useful life of five years on this date, and the long-term liabilities had a maturity date of December 30, Year 12. Any goodwill is to be tested annually for impairment. • Both Par and Star make substantial sales to each other at an intercompany selling price that yields the same gross profit as the sales they make to unrelated customers. Intercompany sales in Year 12 were as follows:
Financial Statements of Par Corp. and its subsidiary Star Inc. on December 31, Year 12, are shown below: Other Information • On January 1, Year 5, the balance sheet of Star showed the following shareholders' equity: On this date, Par acquired 1,400 common shares of Star for a cash payment of $232,400. The fair values of Star's identifiable net assets differed from carrying amounts only with respect to the following: The plant had an estimated remaining useful life of five years on this date, and the long-term liabilities had a maturity date of December 30, Year 12. Any goodwill is to be tested annually for impairment. • Both Par and Star make substantial sales to each other at an intercompany selling price that yields the same gross profit as the sales they make to unrelated customers. Intercompany sales in Year 12 were as follows: • During Year 12, Par billed Star $2,000 per month in management fees. At year-end, Star had paid for all months except for December. • The January 1, Year 12, inventories of the two companies contained unrealized intercompany profits as follows: • The December 31, Year 12, inventories of the two companies contained unrealized intercompany profits as follows: • On July 1, Year 7, Star sold equipment to Par for $76,000. The equipment had a carrying amount in the records of Star of $56,000 on this date and an estimated remaining useful life of five years. • Goodwill impairment losses were recorded as follows: Year 7, $83,000; Year 9, $51,570; and Year 12, $20,560. • Assume a 40% corporate tax rate. • Par has accounted for its investment in Star by the cost method. • All dividends in arrears were paid by December 31, Year 11. Required: (a) Prepare, with all necessary calculations, the following: (i) Year 12 consolidated retained earnings statement (ii) Consolidated balance sheet as at December 31, Year 12 (b) How would the return on equity attributable to Par's shareholders for Year 12 change if Star's preferred shares were non-cumulative instead of cumulative? (c) On January 1, Year 13, Star issued common shares for $100,000 in cash. Because Par did not purchase any of these shares, Par's ownership percentage declined from 70 to 56%. Calculate the gain or loss that would be charged or credited to consolidated shareholders' equity as a result of this transaction.
• During Year 12, Par billed Star $2,000 per month in management fees. At year-end, Star had paid for all months except for December. • The January 1, Year 12, inventories of the two companies contained unrealized intercompany profits as follows:
Financial Statements of Par Corp. and its subsidiary Star Inc. on December 31, Year 12, are shown below: Other Information • On January 1, Year 5, the balance sheet of Star showed the following shareholders' equity: On this date, Par acquired 1,400 common shares of Star for a cash payment of $232,400. The fair values of Star's identifiable net assets differed from carrying amounts only with respect to the following: The plant had an estimated remaining useful life of five years on this date, and the long-term liabilities had a maturity date of December 30, Year 12. Any goodwill is to be tested annually for impairment. • Both Par and Star make substantial sales to each other at an intercompany selling price that yields the same gross profit as the sales they make to unrelated customers. Intercompany sales in Year 12 were as follows: • During Year 12, Par billed Star $2,000 per month in management fees. At year-end, Star had paid for all months except for December. • The January 1, Year 12, inventories of the two companies contained unrealized intercompany profits as follows: • The December 31, Year 12, inventories of the two companies contained unrealized intercompany profits as follows: • On July 1, Year 7, Star sold equipment to Par for $76,000. The equipment had a carrying amount in the records of Star of $56,000 on this date and an estimated remaining useful life of five years. • Goodwill impairment losses were recorded as follows: Year 7, $83,000; Year 9, $51,570; and Year 12, $20,560. • Assume a 40% corporate tax rate. • Par has accounted for its investment in Star by the cost method. • All dividends in arrears were paid by December 31, Year 11. Required: (a) Prepare, with all necessary calculations, the following: (i) Year 12 consolidated retained earnings statement (ii) Consolidated balance sheet as at December 31, Year 12 (b) How would the return on equity attributable to Par's shareholders for Year 12 change if Star's preferred shares were non-cumulative instead of cumulative? (c) On January 1, Year 13, Star issued common shares for $100,000 in cash. Because Par did not purchase any of these shares, Par's ownership percentage declined from 70 to 56%. Calculate the gain or loss that would be charged or credited to consolidated shareholders' equity as a result of this transaction.
• The December 31, Year 12, inventories of the two companies contained unrealized intercompany profits as follows:
Financial Statements of Par Corp. and its subsidiary Star Inc. on December 31, Year 12, are shown below: Other Information • On January 1, Year 5, the balance sheet of Star showed the following shareholders' equity: On this date, Par acquired 1,400 common shares of Star for a cash payment of $232,400. The fair values of Star's identifiable net assets differed from carrying amounts only with respect to the following: The plant had an estimated remaining useful life of five years on this date, and the long-term liabilities had a maturity date of December 30, Year 12. Any goodwill is to be tested annually for impairment. • Both Par and Star make substantial sales to each other at an intercompany selling price that yields the same gross profit as the sales they make to unrelated customers. Intercompany sales in Year 12 were as follows: • During Year 12, Par billed Star $2,000 per month in management fees. At year-end, Star had paid for all months except for December. • The January 1, Year 12, inventories of the two companies contained unrealized intercompany profits as follows: • The December 31, Year 12, inventories of the two companies contained unrealized intercompany profits as follows: • On July 1, Year 7, Star sold equipment to Par for $76,000. The equipment had a carrying amount in the records of Star of $56,000 on this date and an estimated remaining useful life of five years. • Goodwill impairment losses were recorded as follows: Year 7, $83,000; Year 9, $51,570; and Year 12, $20,560. • Assume a 40% corporate tax rate. • Par has accounted for its investment in Star by the cost method. • All dividends in arrears were paid by December 31, Year 11. Required: (a) Prepare, with all necessary calculations, the following: (i) Year 12 consolidated retained earnings statement (ii) Consolidated balance sheet as at December 31, Year 12 (b) How would the return on equity attributable to Par's shareholders for Year 12 change if Star's preferred shares were non-cumulative instead of cumulative? (c) On January 1, Year 13, Star issued common shares for $100,000 in cash. Because Par did not purchase any of these shares, Par's ownership percentage declined from 70 to 56%. Calculate the gain or loss that would be charged or credited to consolidated shareholders' equity as a result of this transaction.
• On July 1, Year 7, Star sold equipment to Par for $76,000. The equipment had a carrying amount in the records of Star of $56,000 on this date and an estimated remaining useful life of five years. • Goodwill impairment losses were recorded as follows: Year 7, $83,000; Year 9, $51,570; and Year 12, $20,560. • Assume a 40% corporate tax rate. • Par has accounted for its investment in Star by the cost method. • All dividends in arrears were paid by December 31, Year 11. Required: (a) Prepare, with all necessary calculations, the following: (i) Year 12 consolidated retained earnings statement (ii) Consolidated balance sheet as at December 31, Year 12 (b) How would the return on equity attributable to Par's shareholders for Year 12 change if Star's preferred shares were non-cumulative instead of cumulative? (c) On January 1, Year 13, Star issued common shares for $100,000 in cash. Because Par did not purchase any of these shares, Par's ownership percentage declined from 70 to 56%. Calculate the gain or loss that would be charged or credited to consolidated shareholders' equity as a result of this transaction.





Transcribed Image Text:

BALANCE SHEETS At December 31, Year 12 Par Star Cash $ 57,000 $ 2,700 Accounts receivable 117,000 102,000 84,360 47,000 520,000 (197,000) Inventories 65,000 87,000 870,000 (317,000) Land Plant and equipment Accumulated depreciation Investment in Star common shares 232,400 $860,760 $809,700 $ 98,800 9,700 Accounts payable $197,000 Accrued liabilities 13,400 67,000 Preferred shares Common shares 450,000 180,000 Retained earnings 302,260 $860,760 352,300 $809,700 RETAINED EARNINGS STATEMENTS for the year ended December 31, Year 12 Par Star Balance, January 1 Net income (loss) $297,260 31,000 328,260 $417,300 (28,000) 389,300 37,000 $352,300 Dividends 26,000 Balance, December 31 $302,260 $8 cumulative preferred shares, 500 shares issued $ 67,000 Common shares, 2,000 shares issued 180,000 Deficit (Note 1) (97,000) $150,000 Par to Star $360,000 Star to Par 381,000 $31,000 Inventory of Par Inventory of Star 30,000 Inventory of Par Inventory of Star $52,000 54,000

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> Yosef Corporation acquired 90% of the outstanding voting stock of Randeep Inc. on January 1, Year 6. During Year 6, intercompany sales of inventory of $45,000 (original cost of $27,000) were made. Only 20% of this inventory was still held within the cons

> Explain the difference between report recipient and primary users as they are described in the framework for analyzing a case and which users should be given priority in financial reporting.

> On January 1, Year 8, Fazli Co. acquired all of the common shares of Gervais. The following transactions occurred in January and February, Year 8: • On January 10, Gervais purchased $10,000 of inventory from outsiders. • On January 20, Gervais sold $6,00

> On January 1, Year 3, the Most Company purchased 80% of the outstanding voting shares of the Least Company for $1.6 million in cash. On that date, Least's balance sheet and the fair values of its identifiable assets and liabilities were as follows: On

> L Co. owns a controlling interest in M Co. and Q Co. L Co. purchased an 80% interest in M Co. at a time when M Co. reported retained earnings of $500,000. L Co. purchased a 70% interest in Q Co. at a time when Q Co. reported retained earnings of $50,000.

> X Co. acquired 75% of Y Co. on January 1, Year 3, when Y Co. had common shares of $100,000 and retained earnings of $70,000. The acquisition differential was allocated as follows on this date: Since this date the following events have occurred: Year 3

> The income statements for Paste Company and its subsidiaries, Waste Company, and Baste Company were prepared for the year ended December 31, Year 9, and are shown below: Additional Information • Paste purchased its 80% interest in Was

> On January 1, Year 1, Spike Ltd. purchased land from outsiders for $200,000. On December 31, Year 1, Pike Co. acquired all of the common shares of Spike. The fair value of Spike's land on this date was $230,000. On December 31, Year 2, Spike sold its lan

> The consolidated income statement of a parent and its 90%-owned subsidiary appears below. It was prepared by an accounting student before reading this chapter. The following items were overlooked when the statement was prepared: • The

> Fast Ltd. is a public company that prepares its consolidated financial statements in accordance with IFRS. Its net income in Year 2 was $200,000, and shareholders' equity at December 31, Year 2, was $1,800,000. Mr. Lombardi, the major shareholder, has ma

> IAS 16 Property, Plant, and Equipment requires assets to be initially measured at cost. Subsequently, assets may be carried at cost less accumulated depreciation, or they can be periodically revalued upward to current value and carried at the revalued am

> Part A On January 1, Year 5, Anderson Corporation paid $650,000 for 20,000 (20%) of the outstanding shares of Carter Inc. The investment was considered to be one of significant influence. In Year 5, Carter reported profit of $95,000; in Year 6, its prof

> List the six steps of the case framework.

> On January 1, Year 7, the Vine Company purchased 60,000 of the 80,000 ordinary shares of the Devine Company for $80 per share. On that date, Devine had ordinary shares of $3,440,000, and retained earnings of $2,170,000. When acquired, Devine had inventor

> On January 2, Year 5, Road Ltd. acquired 70% of the outstanding voting shares of Runner Ltd. The acquisition differential of $520,000 on that date was allocated in the following manner: The Year 9 income statements for the two companies were as follows

> The partial trial balances of P Co. and S Co. at December 31, Year 10, were as follows: Additional Information • The investment in the shares of S Co. (a 90% interest) was acquired January 2, Year 6, for $90,000. At that time, the sha

> The income statements of Evans Company and Falcon Company for the current year are shown below: The following amounts were taken from the statement of changes in eq_uity for the two companies: Evans owns 80% of the outstanding common shares of Falcon

> On January 1, Year 2, PAT Ltd. acquired 90% of SAT Inc. when SAT's retained earnings were $1,000,000. There was no acquisition differential. PAT accounts for its investment under the cost method. SAT sells inventory to PAT on a regular basis at a markup

> On July 1, Year 5, Big purchased 80% of the outstanding common shares of Little for $122,080. On that date, Little's equipment had a fair value that was $21,600 less than carrying amount. The equipment had accumulated depreciation of $20,000 and an estim

> On January 1, Year 4, Cyrus Inc. paid $914,000 in cash to acquire all of the ordinary shares of Fazli Company. On that date, Fazli's retained earnings were $200,000. All of Fazli's assets and liabilities had fair values equal to carrying amounts except f

> On January 1, Year 4, Grant Corporation bought 8,000 (80%) of the outstanding common shares of Lee Company for $70,000 cash. Lee's shares were trading for $7 per share on the date of acquisition. On that date, Lee had $25,000 of common shares outstanding

> Explain if and when it may be appropriate for an accountant to prepare financial statements for external users that are not in accordance with GAAP.

> Briefly explain the concept of fund accounting.

> Peach Ltd. acquired 80% of the common shares of Cherry Company on January 1, Year 4. On that date, Cherry had common shares of $710,000 and retained earnings of $410,000. The following is a summary of the changes in Peach's investment account from Januar

> Pen Ltd. acquired an 85% interest in Silk Corp. on December 31, Year 1, for $646,000. On that date, Silk had common shares of $500,000 and retained earnings of $100,000. The imputed acquisition differential was allocated $70,000 to inventory, with the ba

> Summarized balance sheets of Comer Company and its subsidiary Brook Corporation on December 31, Year 4, were as follows: On the date that Comer acquired its interest in Brook, there was no acquisition differential and the carrying amounts of Brook's ne

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