If one company issued shares as payment for the net assets of another company, it would probably insist that the other company be wound up after the sale. Explain why this condition would be part of the purchase agreement.
> In Case 6.2, we presented the probabilities of scoring at least one run and asked you to determine whether the manager should signal for the batter to sacrifice bunt. The decision was made on the basis of comparing the probability of scoring at least one
> If an intercompany profit is recorded on the sale of an asset to an affiliate within the consolidated entity in Period 1, when should this profit be considered realized? Explain.
> "From a consolidated-entity point of view, intercompany revenue and expenses and intercompany borrowings do nothing more than transfer cash from one bank account to another." Explain.
> List the types of intercompany revenue and expenses that are eliminated in the preparation of a consolidated income statement, and indicate the effect that each elimination has on the amount of net income attributable to non-controlling interest.
> Describe the journal entry on the parent's books under the equity method to adjust for unrealized profits in ending inventory for upstream transactions.
> A subsidiary periodically revalues its land to fair value under the revaluation option for property, plant, and equipment. Explain the adjustments required to the consolidated financial statements if the subsidiary sells this land to the parent at an amo
> An intercompany gain on the sale of land is eliminated in the preparation of the consolidated statements in the year that the gain was recorded. Will this gain be eliminated in the preparation of subsequent consolidated statements? Explain.
> When there are unrealized profits in inventory at the end of Year 1, consolidated profit would normally be affected for Years 1 and 2. Explain.
> What difference does it make on the consolidated financial statements if there are unrealized profits in land resulting from a downstream transaction as compared with an upstream transaction?
> Describe the effects that the elimination of intercompany sales and intercompany profits in ending inventory will have on the various elements of the consolidated financial statements.
> In what way are an individual's pants with four pockets similar to a parent company with three subsidiaries? Explain, with reference to intercompany revenues and expenses.
> How should transfers of resources between funds be presented in fund financial statements? How should they be presented in a single set of non-fund financial statements?
> At the end of the year, the parent's investment account had an equity method balance of $120,000. At this time, its 75%-owned subsidiary had shareholders' equity totaling $125,000. How much was the unamortized acquisition differential at the end of the y
> "Under the equity method, the investment account is adjusted for the investor's share of post-acquisition earnings computed by the consolidation method." Explain this statement.
> "An acquisition differential allocated to revalue the land of a subsidiary on acquisition date will always appear on subsequent consolidated balance sheets." Do you agree? Explain.
> The retained earnings column in the consolidated statement of changes in equity shows dividends declared during the year. Do these dividends consist of the parent's, the subsidiary's, or both? Explain.
> By which method, cost or equity, does IFRS require a parent company to record its investment in a subsidiary? Why?
> A parent company's 75%-owned subsidiary declared and paid a dividend totaling $10,000. How would the parent company record this dividend under the equity method? Under the cost method?
> When the parent has used the equity method, its net income equals consolidated net income attributable to its shareholders, and its retained earnings equal consolidated retained earnings. However, the parent's financial statements are not the same as con
> Is the impairment test for intangibles other than goodwill the same as the one used for goodwill? Briefly explain.
> What are the initial entries on the working paper when the parent has used the cost method to account for its investment?
> A subsidiary was acquired in the middle of the fiscal year of the parent. Describe the preparation of the consolidated income statement for the year.
> The net assets section of an NFPO's statement of financial position should be divided into three main sections. List the sections, and explain the reasons for each.
> Why does adding the parent's share of the increase in retained earnings of the subsidiary and the parent's retained earnings under the cost method result in consolidated retained earnings? Assume that there is no acquisition differential.
> What accounts in the financial statements of the parent company have balances that differ depending on whether the cost or the equity method has been used?
> Explain how the matching principle is applied when amortizing the acquisition differential.
> On the consolidated balance sheet, what effect does the elimination of intercompany receivables and payables have on shareholders' equity and non-controlling interest?
> Briefly outline the process for determining if goodwill is impaired and how to allocate any impairment loss.
> What reporting options related to business combinations are available to private companies?
> Explain how changes in the fair value of contingent consideration should be reported, assuming that the contingent consideration will be paid in the form of cash.
> What is contingent consideration, and how is it measured at the date of acquisition?
> What accounts on the consolidated balance sheet differ in value between entity theory and parent company extension theory? Briefly explain why they differ.
> What is non-controlling interest, and where is it reported in the consolidated balance sheet under the parent company extension and entity theories?
> What guidelines does the Handbook provide for pledges received by an NFPO?
> Under the entity theory and when using the implied value approach, consolidated goodwill is determined by inference. Describe how this is achieved, and comment on its shortcomings.
> How is the goodwill appearing on the statement of financial position of a subsidiary prior to a business combination treated in the subsequent preparation of consolidated statements? Explain.
> With respect to the valuation of non-controlling interest, what are the major differences among proprietary, parent company extension, and entity theories?
> In the preparation of a consolidated balance sheet, the differences between the fair value and the carrying amount of the subsidiary's net assets are used. Would these differences be used if the subsidiary applied push-down accounting? Explain.
> How would the consolidation of a parent-founded subsidiary differ from the consolidation of a purchased subsidiary?
> Don Ltd. purchased 80% of the outstanding shares of Gunn Ltd. Before the purchase, Gunn had a deferred charge of $10.5 million on its balance sheet. This item consisted of organization costs that were being amortized over a 20-year period. What amount sh
> In whose accounting records are the consolidation elimination entries recorded? Explain.
> How is the net income earned by a subsidiary in the year of acquisition incorporated in the consolidated income statement?
> Explain whether the historical cost principle is applied when accounting for negative goodwill.
> What is negative goodwill, and how is it accounted for?
> Outline the Handbook's requirements for NFPOs with regard to accounting for the capital assets of NFPOs.
> Is a negative acquisition differential the same as negative goodwill? Explain.
> What is an acquisition differential, and where does it appear on the consolidated balance sheet?
> What part do irrevocable agreements, convertible securities, and warrants play in determining whether control exists? Explain.
> What criteria must be met for a subsidiary to be consolidated? Explain.
> Briefly describe the accounting involved with the new-entity method.
> Outline the accounting involved with the acquisition method for a 100%-owned subsidiary.
> Explain how an acquirer is determined in a business combination for a 100%-owned subsidiary.
> Can a statutory amalgamation be considered a form of business combination? Explain.
> What are protective rights, and how do they affect the decision of whether one entity has control over another entity?
> It is common for an NFPO to receive donated supplies, equipment, and services. Do current accounting standards require the recording of donations of this kind? Explain.
> What are separate financial statements, and when can they be presented to external users in accordance with IFRS?
> Does the historical cost principle or fair value reporting take precedence when preparing consolidated financial statements at the date of acquisition under the acquisition method? Explain.
> When must an intangible asset be shown separately from goodwill? What are the criteria for reporting these intangible assets separately from goodwill?
> How is goodwill determined at the date of acquisition? Describe the nature of goodwill.
> What are some reasons for the acquisition cost being in excess of the carrying amount of the acquiree's assets and liabilities? What does this say about the accuracy of the values used in the financial statements of the acquiree?
> What key element must be present in a business combination?
> Able Company holds a 40% interest in Baker Corp. During the year, Able sold a portion of this investment. How should this investment be reported after the sale?
> Ashton Inc. acquired a 40% interest in Villa Corp. for $200,000. In the first year after acquisition, Villa reported a loss of $700,000. Using the equity method, how should Ashton account for this loss assuming (a) Ashton has guaranteed the liabilities o
> Briefly outline how NFPOs differ from profit-oriented organizations.
> 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 amount
> Fairchild Centre is an NFPO funded by government grants and private donations. It was established on January 1, Year 5, to provide counselling services and a drop-in center for single parents. On January 1, Year 5, the center leased an old warehouse in t
> Regina Communications Ltd. develops and manufactures equipment for technology and communications enterprises. Since its incorporation, it has grown steadily through internal expansion. In the middle of Year 14, Arthur Lajord, the sole owner of Regina, me
> When Conoco Inc. of Houston, Texas announced the CAD$7 billion acquisition of Gulf Canada Resources Limited of Calgary, Alberta, a large segment of the press release was devoted to outlining all of the expected benefits to be received from the assets acq
> Manitoba Peat Moss (MPM) was the first Canadian company to provide a reliable supply of high-quality peat moss to be used for greenhouse operations. Owned by Paul Parker, the company's founder and president, MPM began operations approximately 30 years ag
> The directors of Atlas Inc. and Beta Corp. have reached an agreement in principle to merge the two companies and create a new company called AB Ltd. The basics of the agreement confirmed so far are outlined below: • The new company will purchase all of
> On December 30, Year 7, Pepper Company agreed to form a business combination with Salt Limited. Pepper issued 4,640 of its common shares for all (5,800) of the outstanding common shares of Salt. This transaction increased the number of the outstanding Pe
> You are examining the consolidated financial statements of a European company, which have been prepared in accordance with IFRS. You determine that property, plant, and equipment is revalued each year to its current fair value, income and equity are adju
> In this era of rapidly changing technology, research and development (R&D) expenditures represent one of the most important factors in the future success of many companies. Organizations that spend too little on R&D risk being left behind by the competit
> An investor uses the equity method to report its investment in an investee. During the current year, the investee reports other comprehensive income on its statement of comprehensive income. How should this item be reflected in the investor's financial s
> Michael Metals Limited (MML) has been a private company since it was incorporated under federal legislation over 40 years ago. At the present time (September, Year 45), ownership is divided among four cousins, each of whom holds 25% of the 100 outstandin
> Canadian Computer Systems Limited (CCS) is a public company engaged in the development of computer software and the manufacturing of computer hardware. CCS is listed on a Canadian stock exchange and has a 40% non-controlling interest in Sandra Investment
> It is January 20, Year 13. Mr. Neely, a partner in your office, wants to see you, CPA, about Bruin Car Parts Inc. (BCP), a client requiring assistance. BCP prepares its financial statements in accordance with ASPE. Richard (Rick) Bergeron, Lyle Chara, an
> Floyd's Specialty Foods Inc. (FSFI) operates over 60 shops throughout Ontario. The company was founded by George Floyd when he opened a single shop in the city of Cornwall. This store sold prepared dinners and directed its products at customers who were
> Hil Company purchased 10,000 common shares (10%) of Ton Inc. on January 1, Year 4, for $345,000, when Ton's shareholders' equity was $2,600,000, and it classified the investment as a FVTPL security. On January 1, Year 5, Hil acquired an additional30,000
> Goal Products Limited (GPL) is the official manufacturer and distributor of soccer balls for the North American League Soccer (NALS), a professional soccer association. GPL is a private company. It has always prepared its financial statements in accordan
> Roman Systems Inc. (RSI) is a Canadian private company. It was incorporated in Year 1 by its sole common shareholder, Marge Roman. RSI manufactures, installs, and provides product support for its line of surveillance cameras. Marge started the company wi
> John McCurdy has recently joined a consultant group that provides investment advice to the managers of a special investment fund. This investment fund was created by a group of NFPOs, all of which have endowment funds, and rather than investing their res
> The provincial government (50%) and three private companies (16.67% each) own Access Records Limited (ARL), which commenced operations on April 1, Year 1. The provincial government currently maintains, on a manual basis, all descriptive information on la
> The Sassawinni. First Nation is located adjacent to a town in northern Saskatchewan. The Nation is under the jurisdiction of the federal government’s Aboriginal Affairs and Northern Development Canada, and for years has received substantial funding from
> Because of the acquisition of additional investee shares, an investor may need to change from the fair value method for a FVTPL investment to the equity method for a significant influence investment. What procedures are applied to effect this accounting
> When and why would an NFPO use replacement cost rather than net realizable value to determine whether inventory should be written down?
> Today is September 16, Year 2. You, CPA, work for Garcia & Garcia LLP, a medium-sized firm located in Montreal. Jules Garcia calls you into his office. "CPA, I have a very special engagement for you. A friend of mine, Louise Martin, is starting a not
> In the fall of Year 5, eight wealthy business people from the same ethnic background formed a committee (CKER committee) to obtain a radio license from the Canadian Radio-television and Telecommunications Commission (CRTC). Their goal is to start a non-p
> Confidence Private is a high school in the historic city of Jeanville. It engages students in a dynamic learning environment and inspires them to become intellectually vibrant, compassionate, and responsible citizens. The private school has been run as a
> You have just completed an interview with the newly formed audit committee of the Andrews Street Youth Centre (ASYC). This organization was created to keep neighborhood youth off the streets by providing recreational facilities where they can meet, exerc
> Beaucoup Hospital is located near Montreal. A religious organization created the not-for-profit hospital more than 70 years ago to meet the needs of area residents who could not otherwise afford adequate health care. Although the hospital is open to the
> Maple Limited (Maple) was incorporated on January 2, Year 1, and commenced active operations immediately in Greece. Common shares were issued on the date of incorporation for 100,000 euros (€), and no more common shares have been issued
> Athena Ltd. is a subsidiary located in Greece. It uses the euro for internal reporting purposes. At December 31, Year 11, the company's inventory on hand had a cost of €20,000 and a net realizable value of €21,000. The i
> On January 1, Year 4, P Company (a Canadian company) purchased 90% of S Company (located in a foreign country) at a cost of 15,580 foreign currency units (FC). The carrying amounts of S Company's net assets were equal to fair values on this date except f
> EVA Company was incorporated on January 2, Year 5, and commenced active operations immediately. Ordinary shares were issued on the date of incorporation and no new ordinary shares have been issued since then. On December 31, Year 9, PAL Company purchased
> Refer to Problem 11-3. All of the facts and data given in the problem are the same. Your answer to Problem 11-3 will be incorporated in the answer to this problem. Kelly Corporation's comparative balance sheets and Year 2 income statement are as follows:
> The Ralston Company owns 35% of the outstanding voting shares of Purina Inc. Under what circumstances would Ralston determine that it is inappropriate to report this investment using the equity method?
> On December 31, Year 1, Kelly Corporation of Toronto paid 13.7 million Libyan dinars (LD) for 100% of the outstanding common shares of Arkenu Company of Libya. On this date, the fair values of Arkenu's identifiable assets and liabilities were equal to th
> Refer to Problem 11-1. All of the facts and data given in the problem are the same except that PMI only purchased 40% of the outstanding ordinary shares of Sandora for US$6,400,000. Additional Information • PMI's 40% in Sandora gave it
> On January 1, Year 4, Par Company purchased all the outstanding common shares of Bayshore Company, located in California, for US$260,000. The carrying amount of Bayshore's shareholders' equity on January 1, Year 4, was US$202,000. The fair value of Baysh
