Question

On December 31, Year 2, Blue purchased a percentage of the outstanding ordinary shares of Joy. On this date all but two categories of Joy’s identifiable assets and liabilities had fair values equal to carrying amounts.

Following are the statements of financial position of Blue Ltd. and Joy Corp. on December 31, Year 2, subsequent to the acquisition.

	Blue Ltd.			Joy Corp.
Plant and equipment	$	678,000		$	449,000
Accumulated amortization		(219,000	)		(129,000	)
Investment in Joy Corp.		612,000			–
Inventory		124,000			239,000
Accounts receivable		97,000			54,000
Cash		36,000			2,000
	$	1,328,000		$	615,000
Ordinary shares	$	441,000		$	319,000
Retained earnings		431,000			(62,000	)
Long-term debt		269,000			259,000
Current liabilities		187,000			99,000
	$	1,328,000		$	615,000

Below is the consolidated statement of financial position for Blue at December 31, Year 2.

BLUE LTD.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
December 31, Year 2
Plant and equipment	$	1,117,000
Accumulated amortization		(219,000)
Goodwill		324,000
Inventory		383,000
Accounts receivable		151,000
Cash		38,000
	$	1,794,000
Ordinary shares	$	441,000
Retained earnings		431,000
Non-controlling interest		108,000
Long-term debt		528,000
Current liabilities		286,000
	$	1,794,000

Required:

(a) From the information provided, determine the percentage of Joy’s ordinary shares purchased by Blue on December 31, Year 2.

Percentage of Blue’s ownership             %

(b-1) Which of Joy’s assets, liabilities or equity items had fair values that were not equal to their carrying amounts at acquisition? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)

• Long-term debtunanswered
• Goodwillunanswered
• Plant and equipmentunanswered
• Ordinary sharesunanswered
• Retained earningsunanswered
• Inventoryunanswered
• Cashunanswered
• Bonds

(b-2) Calculate the fair value of each of the assets, liabilities, or equity items whose fair values were not equal to their carrying amounts at December 31, Year 2.

Answer 1

Blue Ltd. Requirement a Investment in Joy Corp. 612000 Non-controlling interest Total value of Joy Corp. 108000 720000 Therefore, Blue's ownership % 85.00% a/c Requirement b1 Plant and equipment – net Goodwill Inventory Requirement b2 The three consolidated accounts that are not equal to the sum of the carrying amounts of the parent and the subsidiary are plant and equipment, goodwill and inventory. Plant and equipment - net Consolidated amount ($1,117,000 – $219,000) Blue's carrying amount ($678,000 - $219,000) Fair value of Joy's plant and equipment 898000 459000 439000 Goodwill Consolidated amount 324000 Blue's carrying amount Fair value of Joy's goodwill 324000 Inventory Consolidated amount 383000 Blue's carrying amount Fair value of Joy's inventory 124000 259000