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Journal Entries for Preprep Co.

On December 15, 20X8, Preprep Co., a Canadian company, entered into a contract to purchase goods from Mega-Lu Ltd., a foreign corporation. The terms of the contract call for the goods to be delivered to Preprep’s Edmonton location on March 31, 20X9. The cost of the goods is FC500,000, to be settled on April 30, 20X9.

On December 15, 20X8, Preprep Co. also arranged for a forward contract through its bank for FC500,000. The goods were delivered on time and Preprep settled with Mega-Lu on April 30. Preprep has a February 28 year-end.

The spot and forward rates are as follows:
                                                                                           Spot Rate             Forward Rate
            December 15, 20X8                                    FC1 = $1.40 CDN    FC1 = $1.44 CDN
            February 28, 20X9                                                   $1.42                          $1.46

March 31, 20X9                                                        $1.43                          $1.47 

April 30, 20X9                                                           $1.48                          $1.48

Required:

Prepare Preprep’s journal entries to reflect the above, assuming
a)  the hedge is a cash flow hedge, and

  1. b) the hedge is a fair value hedge.

    Problem 2                                                                                                                (60 marks)

    On January 1, 20X8, Liv Ltd. (LL), a Canadian company, acquired 90% of Marcus Co. (MC), a foreign company for FC 623,200. At the acquisition date, the carrying value of MC’s net assets equaled their fair value except for the equipment, which had a carrying value of FC 800,000 and a fair value of FC 880,000. At the acquisition date, MC’s equipment had a remaining useful life of 10 years. There was an FC 4,000 impairment of the goodwill which occurred evenly throughout 20X8.
    Selected financial statements for LL and MC are presented below.Liv Ltd.

Statement of Financial Position
As of December 31, 20X8

(in $ CDN)

            Assets:
            Noncurrent assets:
                        Plant and equipment, net                                                     2,752,000
                        Investment in Marcus Co.                                                     1,371,040
                                                                                                                          4,123,040

            Current assets:

                        Inventory                                                                                 1,376,000
                        Accounts receivable                                                                 700,000
                        Cash and cash equivalents                                                    562,080

                                                                                                                          2,638,080
            Total assets                                                                                         6,761,120

Shareholders’ Equity:

                        Share capital                                                                           1,376,000
                        Retained earnings                                                                 2,601,520
                                                                                                                          3,977,520
            Liabilities:
            Noncurrent liabilities:

                        Notes payable                                                                        1,860,000

            Current liabilities:

                        Accounts payable and accrued liabilities                             923,600
            Total liabilities                                                                                    2,783,600
            Total shareholders’ equity and liabilities                                       6,761,120

Liv Ltd.

Statement of Income

For the year ended December 31, 20X8

(in $ CDN)

                        Sales                                                                          16,472,000

                        Dividend income                                                           180,080

                                                                                                            16,652,080

                        Cost of sales                         8,256,000
                        Other expenses*                  7,124,000                  15,380,000

                        Net income                                                                  1,272,080

                        *includes depreciation

LL declared and paid dividends of $928,000 CDN on December 31, 20X8.

Marcus Co.

Statement of Financial Position

(in FC)                                                                                     Dec. 31,                       Jan. 1
                                                                                        20X8                          20X8

Assets:Noncurrent assets:

            Equipment, net                                                720,000                     800,000

Current assets:

            Inventory                                                          484,000                     364,000

            Accounts receivable                                       408,000                     280,000

            Cash                                                                 360,000                     164,000

                                                                                    1,252,000                     808,000

Total assets                                                               1,972,000                  1,608,000

Shareholders’ equity:

            Share capital                                                    400,000                     400,000
            Retained earnings                                          390,000                     146,000

                                                                                       790,000                     546,000

Liabilities:

Noncurrent liabilities:

            Notes payable                                                 640,000                     640,000

Current liabilities:

            Accounts payable                                           542,000                     422,000

Total liabilities                                                          1,182,000                  1,062,000

Total shareholders’ equity and liabilities             1,972,000                  1,608,000

Marcus Co.

Statement of Income

For the year ended December 31, 20X8

(in FC)

                        Sales                                                                                      8,400,000
                        Cost of sales                                     5,304,000
                        Other expenses*                              2,688,000                  7,992,000

                                                                                                                           408,000

                        *includes depreciation

Marcus Co.

Statement of Changes in Equity – Retained Earnings Section

For the year ended December 31, 20X8

(in FC)

                        Retained earnings, January 1, 20X8                                146,000
                        Net income                                                                            408,000

                        Dividends declared                                                            (164,000)

                        Retained earnings, December 31, 20X8                          390,000

MC declared and paid FC164,000 in dividends on December 31, 20X8.

Selected Exchange Rates

                        January 1, 20X8                                                       FC1 = $2.20 CDN
                        December 31, 20X8                                                FC1 = $2.44 CDN

                        Date when ending inventory was purchased      FC1 = $2.38 CDN

                        Average rate for 20X8                                             FC1 = $2.32 CDN

Required:

  1. Prepare consolidated financial statements at December 31, 20X8 under each of the following assumptions:

    i) the functional currency is $CAD, and
    ii) the functional currency is the FC.

  2. Assume that LL is a private company and reports under ASPE. LL uses the equity method to report its investment in MC. LL’s functional currency is $CAD. Calculate LL’s Investment in Marcus Co.’s account at December 31, 20X8.  There is no need to prepare financial statements. 

Problem 3                                                                                                                 (20 marks)

Community Assist for Refugees (CAR) is a not-for-profit organization that assists refugees with various services including language and cultural training, transportation, a food bank, and translation services. Some selected transactions for CAR are presented below.

  1. CAR received a $5,000 cheque from a local radio station. The letter that came with the donation says that it can be used by CAR on whatever is most urgent.

  2. CAR received a $10,000 donation from the Literacy Fund for a homework assistance project. The project is expected to start in a few months.

  3. CAR received a $25,000 endowment contribution from Dr. Koe for a scholarship fund.

  4. CAR received a donation of 50 student desks for its homework assistance project from City Office Supplies Ltd. The desks are valued at $10,000 and are expected to last 10 years.

  5. The city donated a tract of land, valued at $30,000 to CAR. CAR plans to raise funds to construct a new centre on the land.

  6. Assume that the homework assistance program is underway. The $10,000 donation in part (b) has been spent on materials and a part-time instructor.

  7. Assume that at the end of the year, the endowment contribution in part (c) earned $500 in interest. Dr. Koe had specified that interest must be spent on future scholarships. CAR will wait until there is at least $2,000 in accumulated interest before distributing any scholarships.

  8. At the end of the year, CAR records depreciation on the desks, using the straight-line method.

Required: 

Prepare journal entries to record the above transactions on CAR’s books using

 i)  the deferral method, and

  1. ii) the restricted fund method.
Date Particulars Amount Amount                
                         
15/12/X8 Call Option A/c.   720000                  
    Cash A/c.   720000                
                         
30/4/X9 Cash A/c.   740000                  
    Call Option A/c.   720000                
    Profit on Hedge Activity A/c.   20000                
                         
30/4/X9 Inventory A/c.   740000                  
    Cash A/c.   740000                
                         
  Profit on Hedge Activity A/c.   20000                  
    Other Comprehensive Income A/c.   20000                
                         
                         
      Dr. Cr.                
Date Particulars Amount Amount                
                         
15/12/X8 Call Option A/c.   720000                  
    Cash A/c.   720000                
                         
28/2/X8 Loss on Hedge Activity A/c.   10000                  
    Call Option A/c.   10000                
                         
  Other Comprehensive Income A/c.   10000                  
    Loss on Hedge Activity A/c.   10000                
                         
30/4/X9 Cash A/c.   740000                  
    Call Option A/c.   710000                
    Profit on Hedge Activity A/c.   30000                
                         
30/4/X9 Inventory A/c.   740000                  
    Cash A/c.   740000                
                         
  Profit on Hedge Activity A/c.   30000                  
    Other Comprehensive Income A/c.   30000                
                         
              Consolidation Entries:      
                         
Carrying Amount Fair Value Net Fair Value         Date Particulars Amount Amount  
                         
400000   400000           Equipment A/c.   80000    
146000   146000             BCVR A/c.   80000  
800000 880000 80000                    
                Depreciation Expense A/c.   8000    
    626000             Equipment A/c.   8000  
                         
    623200           Share Capital A/c.   360000    
    62600           Retained Earnings A/c.   131400    
    685800           Goodwill A/c.   59800    
                BCVR A/c.   72000    
    59800             Investment in Marcus Co. A/c.   623200  
                         
                Share Capital A/c.   40000    
Liv Ltd.           Retained Earnings A/c.   14600    
in $CDN Exchnage Rate in FC Marcus LTd. Adjustments Group     BCVR A/c.   8000    
                  NCI A/c.   62600  
16472000 2.32 7100000 8400000   15500000              
180080 2.44 73803   -147600 -73797     Dividend Revenue A/c.   147600    
16652080   7173803 8400000   15573803     NCI A/c.   16400    
-8256000 2.32 -3558621 -5304000   -8862621       Dividend Paid A/c.   164000  
-7124000 2.32 -3070690 -2688000 -8000 -5766690              
        -4000 -4000     Impairment Loss A/c.   4000    
1272080   544493 408000   940493       Goodwill A/c.   4000  
1329440 2.2 604291 146000 -146000 604291              
      164000 -164000 0              
2601520   1148784 390000   1544784              
                         
                         
                         
Liv Ltd.                    
in $CDN Exchnage Rate in FC Marcus LTd. Adjustments Group              
                         
                         
                         
2752000 2.32 1186207 800000 72000 2058207              
1371040 2.2 623200   -623200 0              
        55800 55800              
4123040   1809407 800000   2114007              
                         
1376000 2.38 578151 364000   942151              
700000 2.32 301724 280000   581724              
562080 2.44 230361 164000   394361              
2638080   1110236 808000   1918236              
6761120   2919643 1608000   4032243              
                         
                         
1376000 2.2 625455 400000 -400000 625455              
2601520 2.44 1066197 146000   1544784              
    28164     -446023              
        46200 46200              
3977520   1719815 546000   1770415              
                         
                         
1860000 2.32 801724 640000   1441724              
                         
923600 2.32 398103 422000   820103              
2783600   1199828 1062000   2261828              
6761120   2919643 1608000   4032243              
                         
Acquisition Analysis:           Consolidation Entries:    
                         
Particulars Carrying Amount Fair Value Net Fair Value Exchage Rate Net Fair Value     Date Particulars Amount Amount
      In FC   In CDN           in CDN in CDN
Share Capital 400000   400000 2.2 880000       Equipment A/c.   176000  
Retained Earnings 146000   146000 2.2 321200         BCVR A/c.   176000
Equipment 800000 880000 80000 2.2 176000              
                  Depreciation Expense A/c.   17600  
Net Fair Value of Identifiable Assets & Liabilities     626000   1377200         Equipment A/c.   17600
                         
Purchase Consideration     623200 2.2 1371040       Share Capital A/c.   792000  
Add: Non-Controlling Interest     62600   137720       Retained Earnings A/c.   289080  
Total Value of MC     685800   1508760       Goodwill A/c.   131560  
                  BCVR A/c.   158400  
Goodwill     59800   131560         Investment in Marcus Co. A/c.   1371040
                         
Income Statement:               Share Capital A/c.   88000  
  Marcus Ltd.           Retained Earnings A/c.   32120  
Particulars In FC Exchnage Rate In CDN Liv Ltd. Adjustments Group     BCVR A/c.   17600  
                    NCI A/c.   137720
Sales 8400000 2.32 19488000 16472000   35960000            
Dividend Income       180080 -360144 -180064     Dividend Revenue A/c.   360144  
Total Income 8400000   19488000 16652080   36140080     NCI A/c.   40016  
Cost of Sales -5304000 2.32 -1.2E+07 -8256000   ########       Dividend Paid A/c.   400160
Other Expenses -2688000 2.32 -6236160 -7124000 -17600 ########            
Impairment Loss         -9280 -9280     Impairment Loss A/c.   9280  
Net Income 408000   946560 1272080   2191760       Goodwill A/c.   9280
Add: Retained Earnings (1/1/X8) 146000 2.2 321200 1329440 -321200 1329440            
Less: Dividend Paid 164000 2.44 400160   -400160 0            
Retained Earnings (31/12/x8) 390000   867600 2601520   3521200            
                         
                         
Balance Sheet:                      
  Marcus Ltd.                  
Particulars In FC Exchnage Rate In CDN Liv Ltd. Adjustments Group            
                         
Assets:                        
Non-Current Assets:                        
Plant & Equipment,net 800000 2.32 1856000 2752000 158400 4766400            
Investment in Marcus Co.       1371040 -1371040 0            
Goodwill, net         122280 122280            
  800000   1856000 4123040   4888680            
Current Assets:                        
Inventory 364000 2.38 866320 1376000   2242320            
Accounts Receivable 280000 2.32 649600 700000   1349600            
Cash & Cash Equivalents 164000 2.44 400160 562080   962240            
  808000   1916080 2638080   4554160            
Total Assets 1608000   3772080 6761120   9442840            
                         
Shareholder's Equity:                        
Share Capital 400000 2.2 880000 1376000 -880000 1376000            
Retained Earnings 390000 2.44 951600 2601520   3521200            
Foreign Curreny Translation Reserve     -523360     -799504            
Non-Controlling Interest         97704 97704            
  790000   1308240 3977520   4195400            
Liabilities:                        
Non-Current Liabilities:                        
Notes Payable 640000 2.32 1484800 1860000   3344800            
Current Liabilities:                        
Accounts Payable & Accrued liabilities 422000 2.32 979040 923600   1902640            
Total Liabilities 1062000   2463840 2783600   5247440            
Total Shareholder's Equity & Liabilities 1852000   3772080 6761120   9442840            
                         
                         
Particulars Amount Exchange Rate Amount                  
  (in FC)   (in CDN)                  
Initial Investment in Marcus Co. 623200 2.2 1371040                  
Add: Dividend Revenue 147600 2.44 360144                  
                         
Investment Value in Marcus Co.     1731184                  
                         
    Dr. Cr.         Dr. Cr.      
Particulars Amount Amount   Date Particulars Amount Amount      
                         
Cash A/c.   5000       Cash A/c.   5000        
  Deferred Contribution- Urgent Fund A/c.   5000       Contribution - Unrestricted Fund A/c.   5000      
                         
Cash A/c.   10000       Cash A/c.   10000        
  Deferred Contribution- Homework Assistance Project A/c.   10000       Contribution - Restricted for Homework Assitance Project A/c.   10000      
                         
Cash A/c.   25000       Cash A/c.   25000        
  Deferred Contribution- Scholarship Fund A/c.   25000       Contribution - Restricted for Scholarship Fund A/c.   25000      
                         
Cash A/c.   10000       Cash A/c.   10000        
  Deferred Capital Contribution- Homework Assistance Project A/c.   10000       Contribution - Restricted for Homework Assitance Project A/c.   10000      
                         
Land A/c.   30000       Land A/c.   30000        
  Deferred Capital Contribution- New Centre A/c.   30000       Contribution - Restricted for Homework Assitance Project A/c.   30000      
                         
Furniture-Desks A/c.   10000       Furniture-Desks A/c.   10000        
  Cash A/c.   10000       Cash A/c.   10000      
                         
Deferred Capital Contribution- Homework Assistance Project A/c.   10000       Contribution - Restricted for Homework Assitance Project A/c.   10000        
  Contribution Revenue A/c.   10000       Contribution - Unrestricted Fund A/c.   10000      
                         
Cash A/c.   500       Cash A/c.   500        
  Deferred Contribution- Scholarship Fund A/c.   500       Contribution - Restricted for Scholarship Fund A/c.   500      
                         
Depreciation Expenses A/c.   1000       Depreciation Expenses A/c.   1000        
  Accum Depreciation - Furniture A/c.   1000       Accum Depreciation - Furniture A/c.   1000      
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My Assignment Help. Preprep's Essay: Accounting For Goods Purchase And Forward Contract. [Internet]. My Assignment Help. 2020 [cited 28 May 2024]. Available from: https://myassignmenthelp.com/free-samples/acct451-accounting/statement-of-financial.html.

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