Consolidation worksheet with pre-acquisition equity transfers and intragroup transactions  LO3, 4, 5, 6, 7 On 1 January 2017, Olivia Ltd acquired all the share capital of Chloe Ltd for $300 000. The equity of Chloe Ltd at 1 January 2017 was as follows. Share capital $200 000 Retained earnings 50 000 General reserve 20 000 At this date, all identifiable assets and liabilities of Chloe Ltd were recorded at fair value. On 1 May 2020, Chloe Ltd transferred $15 000 from the general reserve (pre-acquisition) to retained earnings. The income tax rate is 30%. The following information has been provided about transactions between the two entities.

(a) The beginning and ending inventories of Olivia Ltd and Chloe Ltd in relation to the current period ended on 31 December 2020 included the following inventories transferred intragroup. Olivia Ltd Chloe Ltd Beginning inventories: Transfer price $2000 $1200 Original cost 1400 800 Ending inventories: Transfer price 500 900 Original cost 300 700 Olivia Ltd sold inventories to Chloe Ltd during the current period for $3000. This was $500 above the cost of the inventories to Olivia Ltd. Chloe Ltd sold inventories to Olivia Ltd in the current period for $2500, recording a pre-tax profit of $800.

(b) Olivia Ltd sold an inventories item to Chloe Ltd on 1 July 2020 for use as machinery. The item cost Olivia Ltd $4000 and was sold to Chloe Ltd for $6000. Chloe Ltd depreciated the item at a rate of 10% p.a. on cost.

(c) On 31 December 2020, Chloe Ltd owes Olivia Ltd $1000 for items sold on credit.

(d) Chloe Ltd undertook an advertising campaign for Olivia Ltd during the period ended 31 December 2020. Olivia Ltd was charged and paid $8000 to Chloe Ltd for this service.

(e) Olivia Ltd received dividends totalling $63 000 during the current period ended 31 December 2020 from Chloe Ltd. These dividends were declared in the current period out of post-acquisition profits. Required 1. Prepare the acquisition analysis at 1 January 2017. 2. Prepare the business combination valuation entries and pre-acquisition entries at 1 January 2017. 3. Prepare the business combination valuation entries and pre-acquisition entries at 31 December 2020. 4. Prepare the consolidation worksheet journal entries to eliminate the effects of intragroup transactions at 31 December 2020.