Question
On 1 July 2020, Big Ltd acquired all the issued share capital of Small Ltd for cash for an amount of $1,050,000. On the date
On 1 July 2020, Big Ltd acquired all the issued share capital of Small Ltd for cash for an amount of $1,050,000. On the date of the acquisition, the statements of the financial position of both entities are as follows:
|
| Big Ltd ($) | Small Ltd ($) |
| Assets |
|
|
| Cash | 21,000 | 10,500 |
| Accounts receivable | 315,000 | 115,500 |
| Land | 420,000 | 210,000 |
| Plant | 1,680,000 | 1,050,000 |
| Investment in Small Ltd | 1,050,000 |
|
|
| 3,486,000 | 1,386,000 |
| Liabilities |
|
|
| Accounts payable | 126,000 | 63,000 |
| Loans payable | 840,000 | 315,000 |
| Shareholders equity |
|
|
| Share capital | 2,100,000 | 420,000 |
| Retained earnings | 420,000 | 588,000 |
|
| 3,486,000 | 1,386,000 |
Required:
a..Calculate the goodwill on acquisition assuming all net assets of small Ltd are recorded in fair value.
b..Prepare consolidation journal entries.
c..What journal entry would the parent company Big Ltd record in its own accounting record for the acquisition of Small Ltd at the acquisition date?
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Financial Accounting Impact On Decision Makers
Authors: Gary A. Porter, Curtis L. Norton
7th Edition
1111464936, 978-1111464936
