Question 1: Significant Influence
On April I, 20X3, Magenta Ltd. purchased 10% of Niche for $500,000. Both Magenta and Niche have March 31 year-ends. For its 20X4 fiscal year-end, Niche reported net income of $400,000. On March 31, 20X4, Niche had a market value of $550,000 and it paid out dividends of $250,000. On July 31, 20X4, Niche paid out dividends of $100,000. Magenta sold its investment in Niche on October 31, 20X4 for $680,000.
Required:
a. Prepare the 20X3 and 20X4 journal entries for Magenta for the above transactions. Assume that Magenta does not have significant influence.
b. Prepare the 20X3 and 20X4 journal entries for Magenta for the above transactions. Assume that Magenta does have significant influence.
Question 22: Consolidated Balance Sheet at Acquisition Date
On January 2, 20X2, Ohya Ltd. acquired 60% of the voting shares of Ohno Ltd. by issuing shares worth $210,000. Ohya consolidates using entity theory.
Required:
Prepare the consolidated balance sheet immediately following the acquisition of Ohno Ltd.
Ohya and Ohno provided the following information for 20X2:
• During 20X2, Ohno sold goods to Ohya for $560,000. As of December 31, 20X2, Ohya still had 25% of the goods in its inventory. Ohya paid the same price for the goods as Ohno's other customers.
• During 20X2, Ohya sold goods to Ohno for $280,000. As of December 31, 20X2, Ohno still had 20% of the goods in its inventory. Ohno paid the same price for the goods as Ohya's other customers.
• Ohno's warehouse and equipment have remaining useful lives of 10 years and 5 years, respectively. Both Ohno and Ohya use straight-line amortization.
• Neither Ohya nor Ohno has disposed of or has written off any property, plant, or equipment.
• There has been no impairment of goodwill.
Required:
Prepare Ohya's consolidated balance sheet, consolidated income statement, and consolidated statement of retained earnings for December 31, 20X2.
Question 2: Non-Controlling Interests
Ohya and Ohno provided the following information for 20X3:
• All the goods that were in inventory at December 31, 20X2 were sold to third panics by April 20X3.
• During 20X3, Ohno sold goods to Ohya for $224,000. The gross margin is unchanged from 20X2. At December 31, 20X3, Ohya still had 50% of the goods in its inventory.
• At the beginning of December, Ohya sold goods to Ohno for $56,000. Ohya's gross margin on this sale was 50%. By the end of the year, Ohno had not sold any of these goods.
Required:
Calculate the following amounts for the year ended December 31, 20X3:
a. non-controlling interest in earnings that would appear on Ohya's consolidated income statement.
b. non-controlling interest that would appear on Ohya's consolidated balance sheet. Be sure to show all your calculations.