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CLO 3: Analyze disclosures in financial statements and discuss the limitations of balance sheets and issues of income statement content
CLO 4: Prepare and explain consolidated financial statements for business combinations
Case 1: Related party transaction disclosure (10 Marks) a) What is the definition of related party? Give examples of related parties? b) What are the common types of transactions that can be conducted between related parties? c) What are the related parties’ disclosure requirements? Case 2: Interim Reporting disclosure (15 Marks) What is the meaning, objectives, difficulties and suggestions for improvement of interim reports? Case 3 (12.5 marks) Objectives: Prepare consolidated financial statements subsequent to acquisition when parent has applied the equity method, initial value method and the partial equity method and preparing worksheet entries to consolidate the financial records Recognize the complexities in preparing consolidated financial reports emerging from the passage of time, Identify the methods available for a parent company to maintain its investment in subsidiary accounts On January 1, 2020, ALPHA Company acquired all of BETA Company’s outstanding common stock for $1,263,000 in cash. As of that date, one of BETA’s buildings with a 12-year remaining life was undervalued on its financial records by $108,000. Equipment with a 10-year life was undervalued, but only by $15,000. The book values of all of BETA’s other assets and liabilities were equal to their fair values at that time except for an unrecorded licensing agreement with an assessed value of $60,000 and a 20-year remaining useful life. BETA’s book value at the acquisition date was $1,080,000. During 2018, BETA reported net income of $150,000 and paid $45,000 in dividends. Earnings were $180,000 in 2019 with $45,000 in dividends distributed by the subsidiary. As of December 31, 2020, the companies reported the following selected balances, which include all revenues and expenses for the year: