Ying Corporation Formed a New Subsidiary, Zang Limited, in 20X2 $31,20 \mathrm{X} 7$

question 29

Essay

Ying Corporation formed a new subsidiary, Zang Limited, in 20X2. Ying is mainly involved in the manufacturing, distribution, and retailing of dog food and Zang manufacturers and distributes cat food. At that time, Ying provided all of the start-up capital to Zang in the form of equity, purchasing all of Zang's shares for $1.5 million. The unconsolidated statements for the two companies at December 31, 20X7, are shown below. Separate-Entity Financial Statements
Statements of Financial Position for Ying and Zang
December $31,20 \mathrm{X} 7$
(In 000s)
$\begin{array}{|l|r|r|}\hline \text {( In } \$ 000 s) & \text { Ying }\$ & \text { Zang }\$ \\\hline \text { Assets } & & \\\hline \text { Cash } & 160 & 320 \\\hline \text { Accounts receivable } & 2,300 & 620 \\\hline \text { Inventory } & \underline{3,500} & \underline{650} \\\hline & 5,960 & 1,590 \\\hline \text { Property, Plant, and Equipment-net } & 10,900&5,980 \\\hline \text { Investment in Zang } & 1,500 \\\hline \text { Loan receivable - from sub } & 1,000 \\\hline \text { Total assets } & 19,360&7,570 \\\hline\\\hline \text { Liabilities } & & \\\hline \text { Accounts payable } & 5,600 & 1,250 \\\hline \text { Long term debt } & 8,500 & 1,880 \\\hline \text { Loan payable-to parent } & & 1,000 \\\hline \text { Total liabilities } & \underline{14,100} & \underline{4,130} \\\hline \text { Shareholders' equity } & & \\\hline \text { Common shares } & 1,000 & 1,500 \\\hline \text { Retained earnings } & 4,260 & 1,940 \\\hline \text { Total shareholders' equity } & 5,260 & \underline{3,440} \\\hline \text { Total liabilities and shareholders' equity } & \underline{19,360} & \mathbf{7 , 5 7 0} \\\hline\end{array}$ Statements of Comprehensive Income for Ying and Zang
Year Ended December 31, 20X7
(In 000s)
$\begin{array}{|l|r|r|}\hline \text {( In } \$ 000 s) & \text { Ying }\$ & \text { Zang }\$ \\\hline \text { Sales } & 27,600 & 7,440 \\\hline \text { Cost of goods sold } & 19,320 & 4,840 \\\hline \text { Gross profit } & \underline{8,280} & 2,600 \\\hline \text { Expenses } & & \\\hline \text { Selling, general, and administration } & 3,670 & 1,530 \\\hline \text { Interest } & \underline{750} & \mathbf{2 6 0} \\\hline \text { Total expenses } & \mathbf{4 , 4 2 0} & \underline{1,790} \\\hline \text { Operating profit } & 3,860 & 810 \\\hline \text { Other income } & 1,330 & 0 \\\hline \text { Earnings before taxes } & 5,190 & 810 \\\hline \text { Income taxes } & \underline{2,070} & \underline{320} \\\hline \text { Net earnings } & \underline{3,120} & \underline{490} \\\hline\\\hline\end{array}$ Statements of Changes in Equity-Retained Earnings Section for Ying and Zang
Year Ended December 31, 20X7
(In 000s)
$\begin{array}{|l|r|l|}\hline \text {( In } \$ 000 s) & \text { Ying }\$ & \text { Zang }\$ \\\hline \text { Retained Earnings-January 1, 20X7 } & 2,740 &1,800\\\hline \text { Net earnings } & 3,120&490 \\\hline \text { Dividends paid } & (1,600)&(350) \\\hline \text { Retained Earnings-December 31, 20X6 } & 4,260 &1,940\\\hline\end{array}$ During 20X7, the following transactions took place (all dollars are in thousands):
• Ying provided a loan to Zang and charged interest totalling $80.
• Zang sold merchandise to Ying totalling $3,270, which was all subsequently sold to outside third parties by the end of the year.
• Included in Zang's receivables is $270 still owed by Ying for these sales.
• Ying charged management fees of $900 to Zang during the year.
Required:
Using the direct approach, prepare the consolidated statements of comprehensive income; statement of changes in equity-retained earnings section; and statement of financial position at December 31, 20X7. Show details of all of your work to arrive at the consolidated balances. Provide the consolidating journal entries required.

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Definitions:

Blind Taste Test

A blind taste test is a method of evaluating food or drink products where the participants are unaware of the brands being tested to eliminate bias.

Brand Names

The distinctive names given to products or services by businesses to identify and differentiate them from competitors.

Elastic Demand

A situation where the quantity demanded of a good or service significantly changes in response to a change in its price.

Generic Products

Products that are not branded and are sold without any proprietary name or trademark.