Accounting for acquisitions of a business and shares in another entity    LO6 Major Ltd is seeking to expand its share of the men’s products market and has negotiated to acquire the operations of Jack Ltd and the shares of Harkness Ltd. At 1 July 2020, the trial balances of the three companies were as follows. Major Ltd Jack Ltd Harkness Ltd Cash $145 000 $ 5 200 $ 84 000 Accounts receivable 34 000 21 300 12 000 Inventories 56 000 30 000 25 400 Shares in listed companies 16 000 22 000 7 000 Land and buildings (net) 70 000 40 000 36 000 Plant and equipment (net) 130 000 105 000 25 000 Goodwill (net) 6 000 5 000 5 600 $457 000 $228 500 $195 000 Accounts payable $ 65 000 $ 40 000 $ 29 000 Bank overdraft 0 0 1 500 Debentures 50 000 0 100 000 Mortgage loan 100 000 30 000 0 Contributed equity: Ordinary shares of $1, fully paid 200 000 150 000 60 000 Other reserves 15 000 6 500 2 500 Retained earnings (30/6/20) 27 000 2 000 2 000 $457 000 $228 500 $195 000 Jack Ltd Major Ltd is to acquire all assets (except cash and shares in listed companies) of Jack Ltd. Acquisition‐related costs are expected to be $7600. The net assets of Jack Ltd are recorded at fair value except for the following. Carrying amount Fair value Inventories $ 30 000 $ 26 000 Land and buildings 40 000 80 000 Shares in listed companies 22 000 18 000 Accounts payable (40 000) (49 100) Accrued leave 0 (29 700) In exchange, the shareholders of Jack Ltd are to receive, for every three Jack Ltd shares held, one Major Ltd share worth $2.50 each. Costs to issue these shares are $950. Additionally, Major Ltd will transfer to Jack Ltd its ‘shares in listed companies’ asset, which has a fair value of $15 000. These shares, together with those already owned by Jack Ltd will be sold and the proceeds distributed to the Jack Ltd shareholders. Assume that the shares were sold for their fair values. Major Ltd will also give Jack Ltd sufficient additional cash to enable Jack Ltd to pay all its creditors. Jack Ltd will then liquidate. Liquidation costs are estimated to be $8700. Harkness Ltd Major Ltd is to acquire all the issued shares of Harkness Ltd. In exchange, the shareholders of Harkness Ltd are to receive: • one Major Ltd share, worth $2.50 • $1.50 cash for every two Harkness Ltd shares held. Required 1. Prepare the acquisition analysis and journal entries to record the acquisitions in the records of Major Ltd. 2. Explain in detail why, if Jack Ltd has recorded a goodwill asset of $5000, Major Ltd calculates the goodwill acquired via an acquisition analysis. Why does Major Ltd not determine a fair value for the goodwill asset and record that figure as it has done for other assets acquired from Jack Ltd? 3. Shortly after the business combination, the liquidator of Jack Ltd receives a valid claim of $25 000 from a creditor. As Major Ltd has agreed to provide sufficient cash to pay all the liabilities of Jack Ltd at acquisition date, the liquidator requests and receives a cheque for $25 000 from Major Ltd. How should Major Ltd record this payment? Why?