Refer to P 3-7 in the main chapter.

On December 31, 20X6, Profound Limited acquired 100% of the outstanding voting shares of Subtle Limited for $2.2 million in cash. The statements of financial position of Profound and Subtle and the fair values of Subtle's identifiable assets and liabilities immediately before the acquisition transaction were as follows:

Assume that the tax bases of Subtle's assets and liabilities equal their carrying value (i.e., no temporary differences exist between the two, and as such related deferred taxes are zero). Assume that the relevant future tax rate is 25%.

Required
Provide the eliminations and adjustments required at the date of acquisition necessary to prepare the consolidated SFP of Profound Limited on October 1, 20X6. Include in your adjustments the deferred tax adjustment arising from the allocation of the fair value adjustment to the net identifiable assets of Subtle Limited.

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Subtle Limited Profound Limited Carrying value Fair value ASSETS $ 110,000 $ 110,000 Cash $2,300,000 Accounts receivable 600,000 350,000 350,000 500,000 Inventory 580,000 650,000 Land 1,000,000 820,000 950,000 Buildings and equipment 6,200,000 1,350,000 1,150,000 Accumulated depreciation (3,000,000) (380,000) Patents 210,000 160,000 $7,600,000 $3,040,000 LIABILITIES AND SHAREHOLDERS' EQUITY $ 460,000 $ 460,000 Accounts payable $1,100,000 Long-term debt 2,100,000 980,000 850,000 Common shares 1,550,000 1,000,000 Retained earnings 2,850,000 600,000 $3,040,000 $7,600,000