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ORDER A PLAGIARISM FREE PAPER NOW
PART C:
(1) On January 1, 2018, Panorama Company acquired 80% of Scann Corporation for $6,400,000.
At the time of the acquisition, the book value of Scann’s assets and liabilities was equal to the fair value except for equipment that was undervalued $80,000 with a four-year remaining useful life and inventories that were undervalued $20,000 and sold in 2018. Panorama separate net income in 2018 and 2019 was $1,100,000 and $1,150,000, respectively. Scann separate net income in 2018 and 2019 was $300,000 and $360,000, respectively. Dividend payments by Scann in 2018 and 2019 were $60,000 and $60,000, respectively
Required : Using equity method,
1) Calculate Investment in Scann shown on Panorama’s ledger at December 31, 2018 and 2019.
2) Calculate Investment in Scann shown on the consolidated statements at December 31, 2018 and 2019.
3) Calculate consolidated net income for 2018 and 2019.
4) Calculate Noncontrolling interest balance on Panorama’s ledger at December 31, 2018 and 2019.
5) Calculate Noncontrolling interest balance on the consolidated statements at December 31, 2018 and 2019.
(Support your answer in all points with detailed calculations and explanation) (15 Marks)
(2) The consolidated income statement for POP Industries and its 75% Subsidiary, SAS at the end of 2019 was as follows: Consolidated sales $900,000 , Consolidated cost of Sales $500,000 Operating expenses $200,000, Noncontrolling interest share $25,000 ,and Controlling interest share $175,000.
After preparing the consolidated income statement, the accountants discovered that POP had sold inventory that cost $75,000 to SAS for $95,000, and SAS had sold inventory that cost $40,000 to POP for $58,000. Half of the products from both transactions still remained in inventory at December 31, 2019. These intercompany sales transactions had not been properly eliminated in consolidation.
Required: Prepare the consolidated income statement for POP and Subsidiary for 2019 after correcting these errors. (Support your answer with detailed Formulas, calculations and explanation) (15 Marks)
Question 1:
| INVESTMENT IN SCANN Corporation 2018-2019 | |
| Amount
$ |
|
| 2018 | |
| Investment in Cash -Scann Corporation-Jan-2018 | 6,400,000 |
| Add: – share in Adjusted Net Income for the year-2018 of Scann Corporation (260,000 X80%) | 208,000 |
| Less: – Dividend Received from Scann Corporation in 2018 (60000×80%) | (48,000) |
| Closing Balance as on 31 Dec-2018 | 6,560,000 |
| 2019 | |
| Opening Investment as on 01-01-2019 | 6,560,000 |
| Add: – share in Adjusted Net Income for the year-2019 of Scann Corporation (340,000 X80%) | 272,000 |
| Less: – Dividend Received from Scann Corporation in 2019 (60000×80%) | (48,000) |
| Closing Balance as on 31 Dec-2019 | 6,784,000 |
| Working | |||
| Adjusted Income of Scann Corporation | 2018 | 2019 | |
| Net income for the year | 300,000 | 360,000 | |
| Less: – Amortization of Equipment for the Year | (20,000) | (20,000) | |
| Less: – Amortization of Inventory for the Year | (20,000) | – | |
| Adjusted Net Income for the year | 260,000 | 340,000 | |
| Amortization of Undervalued Amounts | 2018 | 2019 | Balance |
| Equipment (80000/4) | 20,000 | 20,000 | 40,000 |
| Inventory (20000) Sold in 2018 | 20,000 | – | – |
| TOTAL | 40,000 | 20,000 | 40,000 |
Part (2): Investment in Scann will not be shown in consolidated Balance sheet as it is the part of balance of Panorama Company only.
Part (3): Consolidated Net Income 2018-2019
| Consolidated Net Income for 2018-2019 | |
| 2018 | Amount
$ |
| Net Income of Panorama company | 1,100,000 |
| Add: – Net Income of Scann Corporation | 300,000 |
| Less: – Adjustment in Net Income of scann Corporation (Depreciation & C.G.S will be charged) | (40,000) |
| Consolidated Net Income | 1,360,000 |
| 2019 | Amount $ |
| Net Income of Panorama company | 1,150,000 |
| Add: – Net Income of Scann Corporation | 360,000 |
| Less: – Adjustment in Net Income of scann Corporation- (Depreciation will be Charged) | (20,000) |
| Consolidated Net Income | 1,490,000 |
Part (4): NON-Controlling Balance on Panorama’s Ledger
| NON-Controlling Interest for 2018-2019 | |
| 2018 | Amount $ |
| Original share of NCI in Scann Assets (6,400,000/80000) x20 | 1,600,000 |
| Add: – 20% share in Adjusted Income of scann Corporation (260,000X20%) | 52,000 |
| Less: – 20% Share in Dividend received (60,000 x20%) | (12,000) |
| Closing Balance of NCI as on 31-12-2018 | 1,640,000 |
| 2019 | Amount $ |
| Opening Balance as on 01-01-2019 | 1,640,000 |
| Add: – 20% share in Adjusted Income of scann Corporation (340,000X20%) | 68,000 |
| Less: – 20% Share in Dividend received (60,000 x20%) | (12,000) |
| Closing Balance of NCI as on 31-12-2019 | 1,696,000 |
Part (5): The above same amounts will be shown in consolidated Balance Sheet & its share in Income will be shown in consolidated Income Statement In 2018-2019
| Consolidated Income Statement of POP Industries | ||||
| For the year Ended- 31st December-2019 | ||||
| Before Correction | Adjustments | Corrected | ||
| Description | USD | USD | USD | |
| Consolidated Sales | 900,000 | (153,000) | 747,000 | |
| Consolidated Cost of Goods Sold | (500,000) | (134,000) | (366,000) | |
| Gross Profit | 400,000 | 381,000 | ||
| Operating Expenses | (200,000) | (200,000) | ||
| Net Profit | 200,000 | 181,000 | ||
| Pop Share 75% | 175,000 | (16,750) | 158,250 | |
| Non-Controlling Interest 25% | 25,000 | (2,250) | 22,750 |
| Working | ||
| Sales from POP to SAS (Parent to Subsidiary) | USD | |
| Sales amount | 95,000 | |
| cost of sales | (75,000) | |
| Profit on Intra Company Sales | 20,000 | |
| Un-Realized profit (Half Inventory in Stock) | 10,000 | |
| will be less from POP Share in SAS Profit | ||
| Sales from SAS to POP ( subsidiary to Parent) | USD | |
| Sales amount | 58,000 | |
| cost of sales | (40,000) | |
| Profit on Intra Company Sales | 18,000 | |
| Un-Realized profit (Half Inventory in Stock) | 9,000 | |
| Adjustment | ||
| 75% POP Share in Profit of SAS | 6,750 | |
| 25% NCI Share in Profit of SAS | 2,250 |
| Adjustments Made in Consolidate Income Statement |
| Intra company sales will be deducted from consolidated Sales Amount (95000+58000)=153,000 |
| Cost of Sales Will also be adjusted with Same amount |
| Total Un-Realized Profit Will be Added back in Cost of Sales |
| parent Company Un-realized Profit will be distributable to its 75% share only |
| Subsidiary un-realized profit will also be shared 25% to NCI & 75 % to Parent company |
