he July 31, Year 3, balance sheets of two companies that are parties to a business combination are as follows: Red Corp. Sax Inc. Carrying Amount Carrying Amount Fair Value Current assets $ 1,660,000 $ 426,000 $ 474,000 Property, plant, and equipment (net) 1,152,000 846,000 978,000 Patents - - 78,000 $ 2,812,000 $ 1,272,000 Current liabilities $ 1,420,000 $ 258,000 258,000 Long-term debt 486,000 366,000 390,000 Common shares 780,000 174,000 Retained earnings 126,000 474,000 $ 2,812,000 $ 1,272,000 In addition to the property, plant, and equipment identified above, Red Corp. attributed a value of $106,000 to Saxs assembled workforce. They have the knowledge and skill to operate Saxs 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 $106,000 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. Reds costs for investigating and drawing up the share purchase agreement amounted to $11,000.

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, select "No Journal Entry Required" in the first account field.)

(ii) Prepare the consolidated balance sheet of Red Corp. as at August 1, Year 3.

(b) Assume that Red issued 118,000 common shares, with a 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 $9,000 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.)

(ii) Prepare Red's consolidated balance sheet as at August 1, Year 3.

(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.)

(ii) Prepare the balance sheet of Red as at August 1, Year 3.