CS141 Application development using OOP: case studyApplication Development using Object Oriented Paradigm: A Case StudyProblem Statement:A transportation company operates individual taxis and shuttles. It uses its taxis for transporting in the form of an individual or small group from one location to another. On the other hand, the shuttles have different scenario. They are used to pick up individuals from separate locations and provide them conveyance to several destinations. Any individual can call the company form anywhere. It may be a hotel, a mall, entertainment venue or any tourist company. When the company receives a call from such individuals, it tries schedule any available taxi for pickup service for a fare. If it has no free vehicles, it does not operate any form of queuing system. If the vehicles are available, then it confirms the individual for pick-up. After arrival at the pick-up place the driver notify the company that it has picked up the passenger. The driver notifies the company again at the time of dropping him off at his destination.The company is now intending to have expansion in its volume. It thinks that this expansion will be vital to get more profit. For this purpose it needs more vehicles in addition to the existing ones. The company is willing to record details of lost fares and details of how each vehicle passes its time. These issues will help assess potential profitability.Keeping the above mentioned problem statement, explain the following 5 steps in detailProblem Statement:A transportation company operates individual taxis and shuttles. It uses its taxis for transporting in the form of an individual or small group from one location to another. On the other hand, the shuttles have different scenario. They are used to pick up individuals from separate locations and provide them conveyance to several destinations. Any individual can call the company form anywhere. It may be a hotel, a mall, entertainment venue or any tourist company. When the company receives a call from such individuals, it tries schedule any available taxi for pickup service for a fare. If it has no free vehicles, it does not operate any form of queuing system. If the vehicles are available, then it confirms the individual for pick-up. After arrival at the pick-up place the driver notify the company that it has picked up the passenger. The driver notifies the company again at the time of dropping him off at his destination.The company is now intending to have expansion in its volume. It thinks that this expansion will be vital to get more profit. For this purpose it needs more vehicles in addition to the existing ones. The company is willing to record details of lost fares and details of how each vehicle passes its time. These issues will help assess potential profitability.Keeping the above mentioned problem statement, explain the following 5 steps in detailThis is the requirements
On January 1, 2017, Puffin Corporation, parent company purchased 90% of the outstanding shares of Seahorse Company for $3,375,000. At that date, the book values and fair values of Seahorse’ assets and liabilities were as follows:
SEAHORSE COMPANY
January 1, 2017
Cash
Book Value $ 200,000
Fair Value $ 200,000
Accounts receivable
600,000
600,000
Inventory
1,100,000
1,050,000
Property, plant and equipment, net
3,000,000
2,900,000
Trademark
0 _
50,000
$4,900,000
$4,800,000
Accounts payable
$ 500,000
$ 500,000
Bonds payable
800,000
800,000
Common shares
2,000,000
Retained earnings
1,600,000
$4,900,000
Puffin uses the cost method to account for its investment in Seahorse. The companies’ balance sheets and income statements at December 31, 2020 were as follows:
PUFFIN CORPORATION AND SEAHORSE COMPANY
Balance Sheets December 31, 2020
Cash
PUFFIN $ 25,000
SEAHORSE $ 450,000
Accounts receivable
900,000
850,000
Inventory
1,200,000
1,100,000
Property, plant and equipment
4,400,000
3,000,000
Accumulated Amortization
(1,000,000)
(500,000)
Investment in Seahorse Company
3,375,000
_
$8,900,000
$4,900,000
Accounts payable
$ 500,000
$ 300,000
Bonds payable
800,000
800,000
Common shares
3,000,000
2,000,000
Retained earnings
4,600,000
1,800,000
$8,900,000
$4,900,000
PUFFIN CORPORATION AND SEAHORSE COMPANY
Income Statements and Retained Earnings year ended December 31, 2020
Sales
PUFFIN $3,500,000
SEAHORSE $1,750,000
Dividend Revenue
45,000
—
Other Revenues
90,000
50,000
Total Revenues
$3,635,000
$1,800,000
Cost of Goods Sold
2,400,000
1,300,000
Gross Profit
1,235,000
500,000
Selling and administrative expenses
204,000
84,000
Bond Interest expense
46,000
56,000
Amortization
300,000
160,000
Income Before Tax
685,000
200,000
Income taxes (30%)
205,500
60,000
Net income
479,500
140,000
Retained earnings Jan 1, 2020
4,195,500
1,710,000
Dividends
75,000
50,000
Retained earnings Dec 31, 2020
$4,600,000
$1,800,000
Additional Information
Property, plant and equipment (PPE) items held by Seahorse as of January 1, 2017 are being amortized over their useful life of 10 years. Inventory held by Seahorse as of January 1, 2017was sold by September 1, 2017. The trademark had an estimated useful life of 20 years at January 1, 2017.
During 2019 and 2020, the fair value of goodwill declined by $10,000 and $20,000, respectively. The fair value of goodwill was not impaired prior to 2019.
In 2019, Seahorse sold Puffin inventory for $90,000. Seahorse sold the inventory at a 25% gross profit. Similarly, in 2020 Seahorse sold Puffin inventory for $75,000, at a 25% gross profit. As of December 31, 2019 and 2020, one-half of the inventory remained in Puffin’ inventory.
During 2020 Puffin sold merchandise that had been purchased for $125,000 to Seahorse for $250,000. All of this merchandise remained in the December 31 inventory of Seahorse. Half of the goods purchased remained unpaid at December 31, 2020.
The $50,000 “Other Revenues” for Seahorse related to Seahorse selling land to an unrelated party on April 1, 2020. Puffin had previously sold Seahorse the land for proceeds of $100,000 on July 1, 2018, when the land had a cost of $80,000.
Other Revenues reported by Puffin in 2020 includes $40,000 management fees charged to Seahorse. Seahorse included this amount in selling and admin expenses.
On January 1, 2019 Puffin sold Seahorse equipment with a book value of $450,000 for
$500,000. The equipment originally cost Puffin $630,000. It had a remaining life of five years at the date of the inter-company sale.
8. Both parties pay taxes at a rate of 30%.
REQUIRED:
Calculate goodwill relating to the acquisition of Seahorse on January 1, 2017 (2 marks) and prepare a acquisition differential amortization schedule to December 31, 2020. (2 marks)
Use the entity theory for calculations.
Summarize inter-company revenues and expenses / eliminations.
Summarize inter-company unrealized profits and losses before and after tax for all years. (8 marks)
Note: similar to solution for Self-Study Problem 2 Chapter 6 and Self-Study Problem 1 Chapter 7.
Prepare a Consolidated Income Statement for the year ended December 31, 2020.
(14 marks)
Prepare a Consolidated Balance Sheet as at Dec. 31, 2020:
(14 marks).
Show supporting calculations for Non-Controlling interest and Retained Earnings at Dec. 31, 2020
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