Corporate Accounting

16. On 1 January 2020, Big Ltd acquired all the issued shares (non cum. div.) of small Ltd for $750 000. At that date, the equity of small Ltd was recorded at:

Share capital $350,000

Reserves 150,000

Retained earnings 100 000

On 1 January 2020, the records of small Ltd also showed that the carrying value of the land is $40,000 with a fair value of $50,000 . Further small Ltd had a dividend payable of $5 000, the dividend to be paid in March 2020. All other assets and liabilities except land were carried at amounts equal to their fair values. Applicable tax rate of 30%.

The Pre-acquisition entry for the year ended 30/06/2021:

Select one:

a. Dr Share capital $350,000, Dr Reserves $150,000, Dr Retained earnings $100,000, Dr BCVR $150,000, Dr Dividend payable $5,000, Cr Dividend receivable $5,000, Cr Shares in Kent $750,000

b. Dr Share capital $350,000, Dr Reserves $150,000, Dr Retained earnings $100,000, Dr Goodwill $150,000, Dr Dividend payable $5,000, Cr Shares in Kent $750,000, Cr Dividend receivable $5,000

c. Dr Shares in Kent $750,000, Dr Dividend receivable $5,000, Cr Share capital $350,000, Cr Reserves $150,000, Dr Retained earnings $100,000, Cr BCVR $145,000, Cr Dividend payable $5,000

d. Dr Share capital $350,000, Dr Reserves $150,000, Dr Retained earnings $100,000, Dr BCVR $150,000, Cr Shares in Kent $750,000