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Land 7 marks (14 minutes) MFD Inc., is negotiating for the purchase of ATH Ltd. The condensed statement of financial position of ATH follows in
Land 7 marks (14 minutes) MFD Inc., is negotiating for the purchase of ATH Ltd. The condensed statement of financial position of ATH follows in an abbreviated form: ATH Ltd. Statement of Financial Position As at December 31, 2020 Assets Liabilities and Shareholders' Equity Cash $118,000 Accounts payable 92000 70,000 Long-term notes payable 351000 Buildings (net) 244,000 Total liabilities 443,000 Equipment (net) 185,000 Common shares $200,000 Copyright (net) 98,000 Retained earnings 72,000 272,000 Total liabilities and Total assets $715,000 $715,000 shareholders' equity MFD and ATH agree that the land is undervalued by $40,000 and the business equipment is overvalued by $12,000. All other items fair values approximate the values as presented in the statement of financial posisiton. ATH agrees to sell the business to MFD for $382,000 cash. Required: a) Prepare the entry to record the purchase of the business's net assets on MFD's books. (5 marks) b) Explain why a business may pay more than the fair market value of the net identifiable assets of a company. (2 marks)
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