Question
On October 1, 2020 Phoenix Ltd. paid $337,500 for 75% of the issued and outstanding common shares of Senators Corp. The recorded assets and liabilities
On October 1, 2020 Phoenix Ltd. paid $337,500 for 75% of the issued and outstanding common shares of Senators Corp. The recorded assets and liabilities of Senators Corp. on October 1, 2020 were:
Cash $ 165,000
Inventory 125,000
Property and equipment $600,000
Accum. Amortization $200,000 400,000
Goodwill 35,000
Total Assets $725,000
Current Liabilities $ 85,000
Long Term Liabilities 115,000
Common Shares 225,000
Retained Earnings 300,000
Total Liabilities & Equity $725,000
On October 1, 2020, Senators Corp. inventory had a fair value of $130,000, and the property and equipment (net) had a fair value of $450,000 and Long Term Liabilities had a fair value of $118,000. The business combination agreement stated that if Senators earnings exceed $2.50 per share in the next 2 years an additional payment equal to $50,000 would be paid to Senators shareholders. An actuary valued this a as equivalent to $37,500 if paid at acquisition date.
REQUIRED: SHOW ALL CALCULATIONS
a) Calculate the amount of goodwill resulting from the business combination using the entity theory.
b) Calculate the non-controlling interest at acquisition date using the entity theory Fair Value Enterprise (FVE).
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