On September 1, 20X5, CanAir Limited Decided to Buy 100

question 40

Essay

On September 1, 20X5, CanAir Limited decided to buy 100% of the shares outstanding of SkyAir Inc. for $900,000. CanAir will pay for this acquisition by using cash of $500,000 and issuing share capital for the remaining amount. The balances showing on the statement of financial position for the two companies at August 31, 20X5, are as follows: After a review of the financial assets and liabilities, CanAir determines that some of the assets of SkyAir have fair values different from their carrying values. These items are listed below:
• Land has a fair value of $225,000.
• The building has a fair value of $1,090,000. The remaining useful life of the building is 20 years.
• Internet domain name has a fair value is $55,000. The domain name is estimated to have a useful life of five years.
• Customer lists have a fair value is $35,000. It is estimated that the customer lists will have a useful life of seven years.
During the 20X9 fiscal year, the following events occurred:
1. On March 1, 20X9, SkyAir sold land to CanAir for $390,000, which had a carrying value of $275,000. CanAir paid for this with $90,000 cash and a note payable for the difference. This note pays interest at 10%, which is paid monthly.
2. CanAir provided management expertise to SkyAir and charged management fees of $890,000.
3. CanAir sold supplies (included in CanAir sales)to SkyAir for $200,000. CanAir charged SkyAir an amount that was 25% above cost. SkyAir still has supplies on hand of $70,000.
4. In 20X8, SkyAir provided seat space on flights to Can Air for a value of $500,000. This amount was included in sales for SkyAir. Profit margin on these sales is 40%. At the end of August, 20X8, CanAir still had an amount of $200,000 in these prepaid seats that had not yet been used. (CanAir includes this in inventory.) Required:
Calculate the consolidated retained earnings as at August 31, 20X9.
Prepare the consolidated statement of financial position for the year ended August 31, 20X9.

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Definitions:

Sensory Coding

The process by which sensory organs translate stimuli into neural signals for the brain to interpret.

Kinesthesis

The sensations generated by receptors in the muscles, tendons, and joints that inform us of our skeletal movement.

Skeletal Muscles

The muscles attached to the skeleton that are responsible for movement and posture, under voluntary control.

Tendons

Fibrous connective tissues that attach muscles to bones, playing a critical role in the movement of skeletal parts.