Question

*Be sure to include GOODWILL and NON-CONTROLLING INTEREST.*

Pharma Company (Pharma) is a pharmaceutical company operating in Winnipeg. It is developing a new drug for treating multiple sclerosis (MS). On January 1, Year 3, Benefit Ltd. (Benefit) signed an agreement to guarantee the debt of Pharma and guarantee a specified rate of return to the common shareholders. In return, Benefit will obtain the residual profits of Pharma. After extensive analysis, it has been determined that Pharma is a controlled special-purpose entity and Benefit is its sponsor The balance sheets (in millions) of Benefit and Pharma on January 1, Year 3, were as follows Benefit Pharma Fair Carrying Carrying value amount amount Current assets Property, plant, and equipment Intangible assets $ 490 $ 90 $ 90 720 240 250 130 100 150 $1,340 $ 430 $490 $ 305 $ 220 $220 645 220 225 Current liabilities Long-term debt Common shares Retained earnings 90 300 11) $1,340 S 430 An independent appraiser determined the fair values of Pharma's noncurrent assets. The appraiser was quite confident with the appraised value for the property, plant, and equipment but had some reservations in putting a specific value on the intangible assets Required Prepare a consolidated balance sheet at January 1, Year 3, assuming that the agreement between Benefit and Pharma established the following fair values for the common shares of Pharma (a) $45 million (b) $40 million (C) $55 million

Answer 1

a.Liability

Common shares Benefit 90 Pharma 45 Consolidated 135

Current liabilities Benefit 305 Pharma 220 Consolidated 525

Long-term Debt Benefit 645 Pharma 220 Consolidated 865

Retained earnings Benefit 300 Pharma -11 Consolidated 289

Asset

Current Assets benefit 490 Pharma 90 Consolidated 580

Property,plant and equipment Benefit 720 Pharma 240 Consolidated 960

intangible assets Benefit 130 Pharma 100 Consolidated 230

b.

Liability

Common shares Benefit 90 Pharma 40 Consolidated 130

Current liabilities Benefit 305 Pharma 220 Consolidated 525

Long-term Debt Benefit 645 Pharma 220 Consolidated 865

Retained earnings Benefit 300 Pharma -11 Consolidated 289

Asset

Current Assets benefit 490 Pharma 90 Consolidated 580

Property,plant and equipment Benefit 720 Pharma 240 Consolidated 960

intangible assets Benefit 130 Pharma 100 Consolidated 230

c.

Liability

Common shares Benefit 90 Pharma 55 Consolidated 145

Current liabilities Benefit 305 Pharma 220 Consolidated 525

Long-term Debt Benefit 645 Pharma 220 Consolidated 865

Retained earnings Benefit 300 Pharma -11 Consolidated 289

Asset

Current Assets benefit 490 Pharma 90 Consolidated 580

Property,plant and equipment Benefit 720 Pharma 240 Consolidated 960

intangible assets Benefit 130 Pharma 100 Consolidated 230