Menu
support@graduatecourseshelp.com
+1(805) 568 7317

the following are the december 31 year 9 balance sheets of three related companies c 737379

The following are the December 31, Year 9, balance sheets of three related companies:

Cash

Pro Ltd.

$ 70,000

Forma Corp.

$ 1,500

Apex Inc.

$200,000

Accounts receivable

210,000

90,000

110,000

Inventory

100,000

62,500

70,000

Investment in Forma Corp.—at cost

416,000

Investment in Apex Inc.—at cost

150,000

(continued)

Land

Pro Ltd.

100,000

Forma Corp.

110,000

Apex Inc.

60,000

Plant and equipment

636,000

550,000

290,000

Accumulated depreciation

(185,000)

(329,000)

(60,000)

$ 1,497,000

$485,000

$670,000

Accounts payable

$ 175,000

$ 90,000

$130,000

Bonds payable

312,000

Common shares

800,000

100,000

500,000

$12 preferred shares

200,000

Retained earnings

210,000

95,000

40,000

$ 1,497,000

$485,000

$670,000

Additional Information

• On January 1, Year 5, Pro purchased 40% of Forma for $116,000. On that date, Forma’s shareholders’ equity was as follows:

Common shares

$100,000

Retained earnings

80,000

$180,000

All of the identifiable net assets of Forma had fair values equal to carrying amounts except for the following, for which fair values exceeded carrying amounts as follows:

Inventory $20,000

Plant and equipment 50,000

• One of Forma’s products, the Epod, was unique in the market place and was a hot seller. Forma could not produce this product fast enough to meet the customer demand. The order backlog would take more than 6 months to com plete. An independent appraiser valued the order backlog at $40,000 at the date of acquisition.

On September 30, Y ear 7, P r o pu r chased the r emaining 60% of Forma for

$300,000. On that date, Forma’s sha r eholders’ equity was as follows:

Common shares

$100,000

Retained earnings

110,000

$210,000

On this date, the following net assets of Forma were undervalued by the amounts shown:

Inventory

$10,000

Land

60,000

Plant and equipment

70,000

• For consolidation purposes, any acquisition differential allocated to plant and equipment is amortized over 20 years from each date of acquisition. A good will impairment loss amounting to $2,025 was recorded in Year 8.

• During Year 8, Forma issued 2,000 cumulative, $12, no par value preferred shares. Pro did not acquire any of these shares.

• The inventories of Pro contained intercompany profits from items purchased from Forma in the following amounts:

December 31, Year 8 $40,000

December 31, Year 9 45,000

• During Year 9, Pro and two other unrelated companies formed Apex, which is a joint venture. Pro invested $150,000 cash for its 30% interest in Apex.

• The year end inventories of Apex contained a $12,000 intercompany profit from items purchased from Pro since its formation in Year 9.

Forma paid dividends in all years prior to Y ear 9.

On December 31, Y ear 9, the accounts r eceivable of P r o contained the

following:

Receivable from Forma $13,000

Receivable from Apex 40,000

• Use income tax allocation at a 40% rate as it applies to unrealized profits only.

Igno r e defer r ed income taxes on the acquisition di f fe r ential.

Required:

(a) Prepare the Year 9 consolidated balance sheet assuming that

(i) Pro is a public company and reports its investment in Apex using the equity method; and

*(ii) Pro is a private company and reports its investment in Apex using pro portionate consolidation.

*(b) Calculate the current ratio for each of the balance sheets in Part (a). Which reporting method presents the strongest liquidity position? Briefly explain.

"Order a similar paper and get 15% discount on your first order with us
Use the following coupon
"GET15"

Order Now