Essays on Accounting (External Reporting) - Consolidation Financial Statements, Acquisition Analysis, Math Problem

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1. Acquisition analysis at 1 July 2008Entry in the books of Kowloon Tong LtdDebitCredit---------------Shares in Jordan 60,000Cash (or other consideration)60,000To record acquisition of 60,000 shares ofJordan Ltd(Memorandum: With 6,000 shares bonus dividend)Entry in the books of Jordan LtdCash (or other consideration)60,000Share capital60,000To record sale of 60,000 shares toKowloon Tong Ltd(Memorandum: With 6,000 shares bonus dividend)Subsequent entry: By January 2010, the following entry shall be recorded in the books of Kowloon Tong LtdShares in Jordan 6,000Dividend income (or Other revenue)6,000To record receipt of dividend income fromJordan Ltd. Subsequent entry: By January 2010, the following entry shall be recorded in the books of Jordan LtdOther reserves 6,000Share capital6,000To record issuance of bonus dividend of6,000 shares to Kowloon Tong Ltd.

fromOther reserves2. Consolidation worksheet journal entries at 30 June 2010The following consolidation journal entries will be recorded in the books of Kowloon Tong Ltd for the acquisition of all the shares of Jordan Ltd. DebitCredit---------------Land24,480Machinery 22,000Equipment37,300Inventory70,320Deferred tax asset 7,400Other assets 3,100Retained earnings 3,200Current tax liability 2,500Other payables10,100Shares in Jordan 137,200 Advance to Jordan Ltd10,000Accumulated depreciation – machinery 2,000Accumulated depreciation – equipment 6,000To consolidate the assets and liabilities ofJordan Ltd. Current tax liability 950Tax expense 950To adjust tax expense computed, thus –Total consolidated profit before tax 27,500Tax rate 30%-----------Should-be tax expense 8,250Total tax per books 9,200-----------Adjustment 950vvvvvvvRetained earnings 4,500Cost of sales53,500Other expenses27,000Tax expenses 2,000Sales revenue65,000Other revenue22,000To consolidate the nominal accounts ofJordan Ltd. Retained earnings14,000Dividend paid 4,000Dividend declared14,000To reclassify dividends paid and declared to Retained earnings.

Exhibit AKowloon Tong Ltd Consolidated Balance SheetJune 30, 2010ASSETSCurrent assetsInventory241,900Deferred tax asset 23,600Total current assets265,500Property, plant and equipmentLand 24,480Machinery 50,000Equipment 71,300-----------Total property, plant andequipment145,780Less accumulateddepreciation: machinery, 6,000;equipment, 8,000 14,000 -----------Property, plant and equipment – net131,780Other assets 11,720------------TOTAL ASSETS409,000======LIABILITIES AND STOCKHOLERS’ EQUITYLiabilitiesCurrent liabilitiesDividend payable 10,000Current tax liability 9,550------------ 19,550Debentures120,000Other payables 44,900-----------TOTAL LIABILITIES184,450Stockholders’ equityShare capital170,000General reserve 41,000Retained earnings, beginning 16,000Add: Profit for the period 19,250----------- 35,250Less: Consolidation adjustments and reclassification ofpaid and declared dividends 21,700-----------Retained earnings, ending - Exhibit B 13,550 ----------TOTAL STOCKHOLDERS’ EQUITY224,550-----------TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY409,000====== Exhibit B Kowloon Tong LtdConsolidated Income StatementFor the Year Ended June 30, 2010Sales revenue150,000Less: Cost of sales118,500-----------Gross profit on sales 31,500 Add: Other revenue 45,000-----------Total revenue 76,500Less: Other expenses 49,000-----------Profit before tax 27,500Less: Tax expense (30%) 8,250-----------Profit for the period 19,250Add: Retained earnings, beginning 16,000----------- 35,250Less: Consolidation adjustments 7,700Reclassification of paid and declareddividends to Retainedearnings 14,000 ---------- 21,700-----------Retained earnings, ending - Exhibit A 13,550=======

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