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QUESTION #2(25 MARKS) - On April 1st Year 2017, X Company purchased 80% of the Y Company for $1,000,000. At that date the common shares of Y was $450,000 and retained earnings $ 525,000 At this date the book values and fair values of the assets and liabilities of the Y Company were equal to their fair values except for the following items. Book Value. .Fair Value Plant and equipment.. .60,000. 80.000 Accounts receivable. 40,000. .50,000 Inventories.. 80,000. 45,000 Accounts payable. 50,000. 55,000 The plant and equipment had a remaining useful life of 10 years. Goodwill testing resulted in impairment in goodwill in 2019 of $60,000 and $35,000 in 2020. The financial statements for the two companies for the year ended December 31, 2020 were as follows:- X. Assets:- Cash....... Accounts receivable. Inventories.. Capital assets, net. Investment in the Y Company. TOTAL ASSETS. $ 12,000. 200,000... 185,000.. 1,445,000. . 1,000,000. $ 2,842,000.... .$ 25,000 .230,000 250,000 840,000 ..$1,345,000 Liabilities & Owners' Equity:- Accounts payable. $ 240,000 $ 130,000 Gunn Other liabilities on non Liabilities & Owners' Equity:- Accounts payable. $ 240,000. Other liabilities. 320,000 Common Shares... 1,200,000. Retained Earnings...... .1,082,000.. TOTAL LIABILITIES & OWNERS' EQUITY.$ 2.842,000.... 130,000 65,000 .450,000 700,000 $1,345,000 $ 955,000 Sales. Dividends... Cost of goods sold.. Gross Margin. Amortization Expense. Other expenses... Dividends..... Income Taxes...... NET INCOME AFTER TAXES... $2,900,000 64,000 . 1,500,000 1,464,000... 245,000... 130,000. 400,000 185,000..... .$ 504,000.... 545,000 410,000 90,000 30,000 80,000 21,000 $189,000 Additional Information:- i. ii. On September 1st 2018, Y purchased a machine from X for $52,000. The machine had a net book value of $40,000 and an estimated useful life of 8 years at the time of the sale to Y. The 2020 opening inventories of X contained $50,000 of merchandise purchased from Y during 2019. Y had recorded a profit of $20,000 on these sales. During 2020, Y sales to X totaled $24,000. These sales were made at a 20% mark up on cost. During 2020, X sales to Y totaled $50,000. Y's ending inventories in 2020 contained $30,000 of merchandise purchase from X. X charges Y a 10% mark up on sales. Both companies use a 40% tax rate. iii. iv. V. Required a. Calculate consolidated net income for the year ending December 31st 2020( 8 marks) b. What is the net income attributable to non-controlling interest (1 mark) WORKING PAPERS (16 MARKS) QUESTION #3(15 MARKS):- Burgers Unlimited (BU)is a Canadian Company specializing in the use of organic meats only for its burgers. The Company is owned by John Brown of Muskoka, Canada, where the business has been very successful over the last 10 years. This year the Company ran into financial difficulties and, to avoid bankruptcy, John Brown asked his friend of several years, Timothy Smith who owns a majority shareholding in Muskoka Lighting Company(MLC), a public Company, to assist him by providing additional financing. MLC advanced $1,000,000 to BU for a one-third interest in BU. The accountant at MLC is considering how to record and report this investment. Required:-What recording and reporting structures are available to MLC. Choose one of these structures and explain why you made that decision and how you will record and report under the method of your choice. QUESTION #2(25 MARKS) - On April 1st Year 2017, X Company purchased 80% of the Y Company for $1,000,000. At that date the common shares of Y was $450,000 and retained earnings $ 525,000 At this date the book values and fair values of the assets and liabilities of the Y Company were equal to their fair values except for the following items. Book Value. .Fair Value Plant and equipment.. .60,000. 80.000 Accounts receivable. 40,000. .50,000 Inventories.. 80,000. 45,000 Accounts payable. 50,000. 55,000 The plant and equipment had a remaining useful life of 10 years. Goodwill testing resulted in impairment in goodwill in 2019 of $60,000 and $35,000 in 2020. The financial statements for the two companies for the year ended December 31, 2020 were as follows:- X. Assets:- Cash....... Accounts receivable. Inventories.. Capital assets, net. Investment in the Y Company. TOTAL ASSETS. $ 12,000. 200,000... 185,000.. 1,445,000. . 1,000,000. $ 2,842,000.... .$ 25,000 .230,000 250,000 840,000 ..$1,345,000 Liabilities & Owners' Equity:- Accounts payable. $ 240,000 $ 130,000 Gunn Other liabilities on non Liabilities & Owners' Equity:- Accounts payable. $ 240,000. Other liabilities. 320,000 Common Shares... 1,200,000. Retained Earnings...... .1,082,000.. TOTAL LIABILITIES & OWNERS' EQUITY.$ 2.842,000.... 130,000 65,000 .450,000 700,000 $1,345,000 $ 955,000 Sales. Dividends... Cost of goods sold.. Gross Margin. Amortization Expense. Other expenses... Dividends..... Income Taxes...... NET INCOME AFTER TAXES... $2,900,000 64,000 . 1,500,000 1,464,000... 245,000... 130,000. 400,000 185,000..... .$ 504,000.... 545,000 410,000 90,000 30,000 80,000 21,000 $189,000 Additional Information:- i. ii. On September 1st 2018, Y purchased a machine from X for $52,000. The machine had a net book value of $40,000 and an estimated useful life of 8 years at the time of the sale to Y. The 2020 opening inventories of X contained $50,000 of merchandise purchased from Y during 2019. Y had recorded a profit of $20,000 on these sales. During 2020, Y sales to X totaled $24,000. These sales were made at a 20% mark up on cost. During 2020, X sales to Y totaled $50,000. Y's ending inventories in 2020 contained $30,000 of merchandise purchase from X. X charges Y a 10% mark up on sales. Both companies use a 40% tax rate. iii. iv. V. Required a. Calculate consolidated net income for the year ending December 31st 2020( 8 marks) b. What is the net income attributable to non-controlling interest (1 mark) WORKING PAPERS (16 MARKS) QUESTION #3(15 MARKS):- Burgers Unlimited (BU)is a Canadian Company specializing in the use of organic meats only for its burgers. The Company is owned by John Brown of Muskoka, Canada, where the business has been very successful over the last 10 years. This year the Company ran into financial difficulties and, to avoid bankruptcy, John Brown asked his friend of several years, Timothy Smith who owns a majority shareholding in Muskoka Lighting Company(MLC), a public Company, to assist him by providing additional financing. MLC advanced $1,000,000 to BU for a one-third interest in BU. The accountant at MLC is considering how to record and report this investment. Required:-What recording and reporting structures are available to MLC. Choose one of these structures and explain why you made that decision and how you will record and report under the method of your choice

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