03-09 (LO4, 6) The July 31, Year 3, balance sheets of two companies that are parties to a business combination are as follows: Red Corp. Carrying Sax Inc. Amount Current assets $1,720,000 Carrying Amount $ 432,000 Fair Value $480,000 Property, plant and equipment (net) 1,224,000 852,000 984,000 Patents 84,000 $2,944,000 Current liabilities $1,480,000 Long-term debt 492,000 $1,284,000 $ 264,000 264,000 372,000 396,000 Common shares 840,000 180,000 Retained earnings 132,000 $2,944,000 468,000 $1,284,000 In addition to the property, plant and equipment identified above, Red Corp. attributed a value of $112,000 to Sax's assembled workforce. They have the knowledge and skill to operate Sax's manufacturing facility and are essential to the success of the operation. Although the eight manufacturing employees are not under any employment contracts, management of Red was willing to pay $112,000 as part of the purchase price on the belief that most or all of these employees would continue to work for the company. Effective on August 1, Year 3, the shareholders of Sax accepted an offer from Red Corporation to purchase all of their common shares. Red's costs for investigating and drawing up the share purchase agreement amounted to $20,000. Required: (a) Assume that Red made a $944,000 cash payment to the shareholders of Sax for 100% of their shares. (i) Prepare the journal entry in the records of Red to record the share acquisition. (If no entry is required for a transaction/event, calart "No Inurnal Entru Danisirar" in the firet account field\ View transaction list Journal entry worksheet < A Record the acquisition of shares from Sax for $944,000 and payment of professional fees of $20,000. Note: Enter debits before credits. Transaction 1 General Journal Debit Credit Record entry Clear entry View general journal A Record the acquisition of shares from Sax for $944,000 and payment of professional fees of $20,000. Note: Enter debits before credits. Transaction General Journal Debit Credit No Journal Entry Required + Cash Common shares Investment in Sax Record ent Professional fees expense View general journal (ii) Prepare the consolidated balance sheet of Red Corp. as at August 1, Year 3. Assets Red Corp. Consolidated Balance Sheet August 1, Year 3 $ Liabilities and Equity $ 0 (b) Assume that Red issued 118,000 common shares, with market value of $8 per share to the shareholders of Sax for 100% of their shares. Legal fees associated with issuing these shares amounted to $7,000 and were paid in cash. Red is identified as the acquirer. (i) Prepare the journal entries in the records of Red to record the share acquisition and related fees. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.) View transaction list Journal entry worksheet A B Record the acquisition of shares from Sax for $944,000. Note: Enter debits before credits. Transaction 1 General Journal Debit Credit No Journal Entry Required Cash Common shares Invactment in Cav. (ii) Prepare the consolidated balance sheet of Red as at August 1, Year 3. Assets Red Corp. Consolidated Balance Sheet August 1, Year 3 $ 0 Liabilities and Equity $ 0 (c) Assume the same facts as part (b) except that Red is a private company, uses ASPE, and chooses to use the cost method to account for its investment in Sax. (i) Prepare the journal entries in the records of Red to record the share acquisition and related fees. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.) View transaction list Journal entry worksheet < A B Record the acquisition of shares from Sax for $944,000. Note: Enter debits before credits. Transaction General Journal Debit Credit (ii) Prepare the balance sheet of Red as at August 1, Year 3. Red Corp. Balance Sheet August 1, Year 3 Assets 0 Liabilities and Equity $ 0