Reference no: EM133064768
Question 1: Cost method Vs. Equity method
Odom Ltd purchased a 30% shareholding in Bryant Ltd on 1 Jan 2007 for $60 000. This purchase resulted in Odom Ltd having significant influence over Bryant Ltd. Bryant's assets were recorded at fair values and its owners' equity, totalling $180 000, was:
o share capital $80 000
o reserves $60 000 and retained profits $40 000
During 2007 Bryant Ltd reported profit of $100 000, from which a dividend of $60 000 was paid. Also during the year, Bryant Ltd revalued its assets upwards by $50 000. Odom Ltd is a non-parent entity.
Required:
(a) Prepare journal entries for Odom Ltd to record all events in 2007 for its investment in Bryant Ltd;
(b) Assume that Odom Ltd is a parent entity. Prepare journal entries for Odom Ltd to record its investment in Bryant Ltd in its own financial statements.
Question 2: Adapted from Example 26.1 on pages 889-890 - Profits on intercompany inventory transactions
Walton Ltd owns 25% of Bax Ltd and 60% of Finsey Ltd. Bax Ltd and Finsey Ltd are associate and subsidiary of Walton Ltd, respectively.
Bax Ltd reported $240 000 profit in 20X8. During 20X8, inventory sales took place between the Bax Ltd and its related parties:
|
|
Sale price
($)
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Cost
($)
|
Profit
($)
|
On hand % at 31 December 20X8
|
|
Bax to Walton
|
56 000
|
40 000
|
16 000
|
80%
|
|
Walton to Bax
|
90 000
|
70 000
|
20 000
|
50%
|
|
Bax to Finsey
|
45 000
|
30 000
|
15 000
|
70%
|
Required:
Prepare journal entries for Walton Ltd to record the above events in 20X8 using equity method.
Question 3: Comprehensive with financial statements (continued from Lecture example 1)
Odom Ltd Balance Sheet
As at 31 Dec 2006
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Plant and equipment
|
200 000
|
|
Other net assets
|
300 000
|
|
Total net assets
|
500 000
|
|
Paid up capital
|
400 000
|
|
Retained profits
|
100 000
|
|
Owners' equity
|
500 000
|
• Odom Ltd purchased a 30% shareholding in Bryant Ltd on 1 Jan 2007 for
$60 000. This purchase resulted in Odom Ltd having significant influence over Bryant Ld.
• Odom is a non-parent entity.
• Bryant's assets were recorded at fair values and its owners' equity, totalling
$180 000, was:
o share capital $80 000
o reserves $60 000 and retained profits $40 000
• During the year, Bryant reported profit of $100 000 and revalued its assets upwards by $50 000.
• Bryant paid a $60 000 dividend out of current year profit. Odom Ltd uses the separate recognition method to account for the dividend received from Bryant Ltd.
• During the year Odom Ltd generated revenue of $250 000 (excluding revenue from any share investments) and recognised $160 000 of expenses. Odom Ltd also paid dividend of $50 000.
• During the year, Bryant Ltd sold inventory to Odom Ltd and made profit of
$10 000. All of this inventory was still held by Odom Ltd at 31 December 2007, the year end.
Required:
(a) Prepare journal entries for Odom Ltd to record all events in 2007 for its investment in Bryant Ltd.
(b) Prepare an income statement and a balance sheet for Odom Ltd in 2007.