hh QuestionFBE Ltd ("FBE") owns 80% of the shares of AFA Ltd ("AFA") and has control over it. The shares were acquiredon 1 July 2019 by FBE at a cost of $60,000. At acquisition date, the capital of AFA consisted of 50,000 ordinaryshares each fully paid at $1. There were retained earnings of $5,000. All the identifiable assets and liabilities ofAFA were recorded at amounts equal to fair value, except for:Plant (cost $50,000)At acquisition date, the plant had a remaining useful life of 4 years (depreciate on a straight-line basis). On 1April 2021, AFA sold inventory to FBE for $5,000. The inventory was originally recorded at a cost of $4,000 inAFA's books. One-quarter of this inventory remained unsold in FBE by end of the current year. The groupmeasures NCI using partial goodwill method. |The companies' trial balances as at 31 December 2021 are shown below.CreditsFBEShare Capital170,00041,00016,000148,00085,00023,000483,800General ReserveRetained Earnings (31/12/20)LiabilitiesCarrying amount40,000Sales RevenueOther RevenuesDebitsCost of SalesOther ExpensesAssetsIncome Tax ExpenseDividend Declared65,00022,000378,800Fair value41,4007,20010,000483,800AFA50,000-29,50055,10065,00022,000273,60053,50027,000136,1002,0003,000273,600On 1 July 2021, FBE acquired 40% of the shares of B&B Ltd ("B&B") at a cost of $100,000 and exercisedsignificant influence over it. The fair value of the assets and liabilities of B&B at the date of acquisition byFBE were equal to their carrying amounts, with the exception of a machine that had a fair value of $38,500in excess of its carrying amount. The machine had a remaining useful life of five years on 1 July 2021.On 30 September 2021, FBE purchased goods at a price of $9,000 from B&B. All sales made by B&B toFBE are priced on a cost plus a mark-up of 20% basis. FBE sold out half of these goods to its customerswithin the year ended 31 December 2021. B&B has reported an after-tax profit of $30,000 and paid a dividendof $10,000 for the year ended 31 December 2021 (assuming the after-tax profit of $30,000 is earned post-acquisition and the dividend $10,000 is paid out of the post-acquisition earnings).Required:Prepare all consolidation adjusting entries and the consolidated financial statements for FBE Group as at 31December 2021, the current year end. Ignore tax effects on adjustments.

To consolidate the financial statements of the FBE Group, we need to make several adjusting…

Answered: Prepare all consolidation adjusting…

Prepare all consolidation adjusting entries and the consolidated financial statements for FBE Group as at 31 December 2021, the current year end. Ignore tax effects on adjustments.

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

Section: Chapter Questions

Problem 25E

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