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Comm 433 Project Fall 2020 The Case Dandy Delicious Drinks (DDD) was incorporated in 2001 by Patrick and May VanPelt

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Comm 433 Project Fall 2020

The Case
Dandy Delicious Drinks (DDD) was incorporated in 2001 by Patrick and May VanPelt. The
company is headquartered in Victoria, BC, where it manufactures fruit and vegetable juices that
are distributed to retail stores across Canada. Awareness around the health benefits of juicing
began to increase about 12 years ago, and since then, the company has grown significantly.
The VanPelts have three adult children, Brayden, Britney and Ben. All three became actively
involved in the business after they completed university degrees. In 2015, Patrick and May
decided they wanted to slow down and turned the company’s operations over to the children.
Being much younger and more energetic, the children wanted to grow the company significantly
and considered taking it public within the next 5-10 years. To that end, DDD has invested in
other businesses to diversify the company’s products and locations. Brayden is heading up the
acquisitions, Britney is overseeing the finances, and Ben oversees the day-to-day operations in
Victoria.
The siblings are seeking financing through banks and private lenders to continue their
expansion plans. All potential lenders want to see audited consolidated financial statements for
the fiscal year ending September 30, 2021. Britney holds a Bachelor of Commerce degree in
finance and knows that preparing consolidated statements is well beyond her abilities and those
of their staff. As such, they have hired you to oversee the process and assist with the more
complex accounting issues.
Brayden and Ben do not understand why the consolidation process is so complex. To their way
of thinking, all that is required is to add up the accounts from the company and its subsidiaries.
Britney would like you to explain the purpose of consolidating and the reason(s) why the
process can be more complex than simply adding up the accounts of all the companies. She
believes it would be better for you to explain this to them since she often has difficulty
communicating with her brothers in a way that they understand.
The following is a summary of the various investments DDD holds.
Bountiful Vitality Juices (BVJ)
The siblings wanted to expand into the US market; however, receiving approval for new
products from the Food and Drug Administration is a difficult and lengthy process. Early in
2020, Brayden found a successful company based in Seattle, Washington, called Bountiful
Vitality Juices (BVJ). The company sells citrus-based fruit juices like lemonades, orange juices,
etc. It was built from scratch by a couple, Kim and Kelly Farrell, who were looking to sell the
company. They liked that DDD was family-owned and operated and agreed to the sale. On
October 1, 2020, DDD purchased all the outstanding shares of BVJ for US$6,550,000. Kim and
Kelly were heavily involved with the business and so to fill that gap, Ben and other managers
from DDD have been travelling to California extensively to provide management oversight.

BVJ had a significant operating line of credit, which carried a very high interest rate.
Management of DDD was unable to successfully negotiate lower rates or to find new financing
in the US at an acceptable rate. To improve profitability, on October 1, 2020, DDD borrowed
funds and loaned them to BVJ, which used the money to repay the bank indebtedness that
existed at acquisition.
Financial statements and additional information about BVJ are included in Exhibit I.
Liberty Wholesome Snacks (LWS)
During 2017, the siblings purchased a company, Liberty Wholesome Snacks (LWS), which
develops, produces, and sells healthy snack foods. The company currently sells a variety of
energy and protein bars along with a variety of dried fruit and vegetable snacks.
DDD purchased 80% of the shares of Liberty Wholesome Snacks (LWS) for $8,000,000 on
October 1, 2017. An organic farmer owns the remaining shares. The farmer supplies LWS with
a variety of fruits and vegetables used in the production of its products.
Additional information related to LWS, along with the financial statements is provided in Exhibit
II.
RJ Packaging (RJP)
DDD purchased a 30% interest in RJ Packaging (RJP) on September 30, 2018. RJP
manufactures plastic and glass bottles, which DDD uses for many of its products. RJP is
working on a process to use recycled materials in its plastic. DDD purchased an equity interest
both to retain some influence over its supply of bottles but also because it wants to share in the
growth potential of the new product RJP is working on.
Information on the purchase and activities up to September 30, 2021 are contained in Exhibit III.
You may assume the effective tax rate for all companies is 20%.
Required: Prepare a package for the auditors. The package will be completed in two parts.
Note: there is information in the case that relates to Part II (i.e. the foreign subsidiary). You will not be
using all the information for Part I.

In Excel:

1. Analyze the investment in RJ Packaging and adjust the financial statements of DDD as needed.
Hint: consider how RJP was recorded in the financial statements of DDD and then determine the
correct treatment. Your analysis should break down the adjustment for prior years and the
current year.

2. Once you have adjusted DDD's financial statements for the error in RJP , prepare the worksheet
for consolidating DDD and Liberty Wholesome Snacks (LWS). You do not need to deal with the
foreign subsidiary in this part. Your excel spreadsheet should include one column for the
adjusted DDD amounts, one column for LWS, two columns for the eliminating entries, one
column for referencing the journal entries, and one column (last column) for the consolidated
totals.. Here are a few hints:

a. Inthe consolidated column, ensure that the consolidated retained earnings in the
statement of financial position is linked to the ending balance in your retained earnings
statement. By doing this, it will allow you to make sure your SFP balances after each
eliminating entry.

b. Ensure that the consolidated net income in the retained earnings statement is linked to
the net income attributable to the parent in the consolidated net income statement.

c. Check to make sure you balance before you post any eliminating entries and after every
entry. It will save you a lot of time.

d. Asample template is provided but you will need to make some adjustments based on
your work.

e. Please note that the more organized your excel spreadsheet, the easier it is for the
marker to navigate through your work.

f. One possible set up in excel would be: Tab 1: Requirement 1 — RJP adjustment, Tab 2:
the consolidated working paper, Tab 3 the eliminating entries, Tab 4: the supporting
calculations and Tab 5 the properly formatted financial statements based on your final
working papers.

3. Prepare the eliminating entries for the consolidation of LWS. Make sure to reference the journal
entries in your working papers.

4. For the September 30, 2021 financial statements prepared above, prepare separate supporting
calculations for: Consolidated Net Income attributable to the parent and to NCI, Consolidated
Retained Earnings, and Non-controlling Interest on the statement of financial position.

5. Aproperly formatted Consolidated Statement of Financial Position as at September 30, 2021
(comparative totals are not required) and a properly formatted Consolidated Income Statement
and Statement of Retained Earnings for the year ending September 30, 2021 (comparative totals
are not required).

In Word:

1. Prepare for the owners your analysis and comments to explain why the consolidated statements
are not simply a sum of the individual company’s account balances. Hint: your discussion should
focus on the changes you are required to make in the creation of the consolidated statements.
This memo should not be an explanation of the calculations you made, but rather should be an
explanation of why the adjustments were made.

Your memo should be no longer than 3 pages, double spaced, times new roman 12 font.

Part Il — Due November 27", 2020 at 99m: Based on the information provided prepare the

following:

In Excel:

1. Assuming the functional currency is Canadian dollars, translate the foreign subsidiary’s
financial statements at September 30, 2021. Your response must have a separate
calculation for the foreign exchange gain or loss. Please show all your calculation in Excel.
Hint: you should use a multi-column format to show your work. Input the financial statements
in US Dollars, then show the appropriate exchange rate in the next column, finally show the
Cdn $ equivalent in a third column. You do not need to prepare a proper format set of
statements, nor are you required to consolidate these totals with the financial statements in
part 1.

2. Assuming the functional currency is not the Canadian dollars, translate the foreign
subsidiary’s financial statements at September 30, 2021. Your response must have a
separate calculation for the foreign exchange gain or loss. Please show all your calculation in
Excel. Hint: you should use a multi-column format to show your work. Input the financial
statements in US Dollars, then show the appropriate exchange rate in the next column, finally
show the Cdn $ equivalent in a third column. You do not need to prepare a proper format set
of statements, nor are you required to consolidate these totals with the financial statements in
part 1.

3. While you will not be consolidating the translated financial statements of the foreign
subsidiary, Britney would like you to calculate the goodwill at acquisition, in Canadian dollars.

Exhibit I – BVJ information
DDD purchased 100% of the outstanding shares of Bountiful Vitality Juices (BVJ) for USD
$6,550,000 on October 1, 2020. Both parties agreed to use the financial statements at
September 30, 2020 for the acquisition given there are no transactions between September 30,
2020 and October 1, 2020. At acquisition date, all the fair values were equal to the book values
with the exception of:
Fair value in USD$
Accounts Receivable $3,413,000
Inventory 8,100,000
Property and Equipment 4,300,000
Land 3,800,000
Customer list (internally generate – no corresponding
book value)
150,000
The equipment, at acquisition, had a remaining useful life of 7 years. The customer list had a
10-year useful life at the time the company was acquired. Inventory turns over 5 times a year
and accounts receivable turns over 8 times a year.
The direct exchange rate at acquisition is $1 US = $1.345. All exchange rates are quoted to
reflect the value of $1 US dollar equal to Canadian $.
On January 31, 2021, the company sold a parcel of land, to an unrelated third party, for
US$1,114,750 when the exchange rate was $1.36. The land originally cost US$750,000 and
was purchased by BVJ in 2011 when the exchange rate was $1.002. On June 30, 2021,
additional equipment was purchased for US$797,750. Depreciation expense on the new
equipment for 2021 was US $169,900. The remainder of depreciation expense recorded relates
to the equipment acquired in the initial purchase.
Management has determined that inventory existing as at September 30, 2020 was purchased
when the exchange rate was $1.2918 = $1US, and inventory existing as at September 30, 2021
was purchased when the exchange rate was $1.2998 = $1US. Purchases of inventory
happened evenly throughout the year.
Prepaid expense relates entirely to prepaid insurance. BVJ’s insurance policy runs from July 1
– June 30 of each year. On June 30, BVJ prepays the premium for the upcoming year.
Premiums are expensed equally over the 12 months they relate to. Spot rates on June 30 were:
June 30, 2020 1.2380
June 30, 2021 1.2874
General and admin expense includes insurance expense. All other general and admin
expenses are assumed to have occurred evenly over the year. Dividends were declared and
paid on June 30, 2021. The exchange rate on September 30, 2021 was $1.32.

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