Pure Waste Systems Inc. (PWS) is a Canadian public company. On December 31, 2020, PWS acquired common shares of Sewer Waste Corp. (SWC). Below are three independent questions based on different scenarios for the number of shares acquired and how the shares are acquired. All the scenarios' share the same initial financial data. SWC's comparative statement of financial position as at December 31,2021 , and its statement of comprehensive income for the year ended December 31, 2021 are as follows: Sewer Waste Corp. Statement of financial position As at December 31 The fair value of each of SWC's identifiable net assets at time of acquisition is as follows: (in $000s ) (Assume that all assets have no residual values at the and of thair useful lives.) Additional information: 1. Both companies pay income tax at a rate of 40%. 2. Both companies use the straight-line method of depreciation and both companies use first in, first out (FIFO) to value their inventories. 3. Assume any fair value difference on the long-term debt is amortized using the straight-line method. 4. PWS established that SWC is a cash-generating unit (CGU) subject to impairment testing. 5. On June 30, 2021, SWC sold land to PWS for $130,000. SWC's net book value at time of sale was $50,000, which was the same as the estimated fair value at acquisition date of the associate. In consideration of the transfer, PWS paid $30,000 cash and signed a note payable to SWC for the $100,000 balance. The note is payable in full on June 30,2024 . Interest at 5% is payable annually with the first payment doe on June 30,2022. 6. During 2021, PWS sold goods to SWC for $120,000 including a 30% gross profit margin; 40% of these goods remained unsold by SWC as at December 31, 2021. 7. During 2021, sWC sold goods to PWS for $170,000 including a 50% gross profit margin; 10% of these goods remained unsold by PWS as at December 31, 2021. 8. During 2021, SWC incurred management fee expense from PWS at a total cost of $25,000. This amount remained unpaid at year end. SWC recorded this as an SG\&A expense while PWS recorded it as other income. 9. On September 1, 2021, PWS sold equipment to SWC for $100,000 cash. PWS's carrying value of the equipment, which had a remaining useful life of ten years, was $90,000. The gain was recorded in other income. 10. Both PWS and SWC paid dividends during the year ended December 31 , 2021. 11. PWS and SWC only prepare adjusting entries at year end. QUESTION #1 (10 Marks) Assume that on December 31,2020 . PWS paid $1,300,000 cash to acquire 100% of the net assets of SWC. Required: a) Calculate and allocate the acquisition differential including determination of the goodwill arising on the acquisition of the net assets of SWC. (5 marks) b) Prepare PWS's journal entry to record the acquisition. Support the journal entry with abrief explanation as to its nature. ( 5 marks) QUESTION # 2 (10 marks) Now assume that on December 31,2020 , PWS issued 100,000 of its common shares to acquire 100% of the common shares of SWC. PWS's common shares were actively traded at $13 at acquisition date. PWS disbursed $35,000 cash to pay for costs directly related to the acquisition of SWC and an additional $28,000 cash to pay for the cost of issuing the additional shares. PWS's non-consolidated statement of financial position as at December 31, 2020, which was prepared after all PWS's year-end adjustments had been processed but which does not include the investment made in SWC described in the points above, is as follows: Pure Waste Systems Inc. Statement of financial position As at December 31, 2020 Required: Prepare PWS's consolidated statement of financial position at the December 31, 2020, acquisition date. Question 3 ( 80 marks) Now assume that on December 31,2020 . PWS paid $980,000 cash to acquire 70% of SWC's outstanding common shares. (No additional costs were incurred.) PWS tested the CGU for impairment on December 31, 2021. Goodwill was found to be impaired by $80,000. PWS's non-consolidated comparative statement of financial position as at December 31, 2021, and its non-consolidated statement of comprehensive income for the year ended December 31, 2021, are set out below: Pure Waste Systems Inc. Statement of comprehensive income For the year ended December 31,2021 (in '000s) Required: a) Use the acquisition method to allocate the acquisition differential and determine goodwill arising on acquisition, assuming that PWS uses the identifiable net assets (INA) method to value the non-cor Illing interest (NCI). (5 marks) b) Use the acquisition method to allocate the acquisition differential and determine goodwill arising on acquisition, assuming that PWS uses the fair value enterprise (FVE) method to value the NCl. (5 marks) For all remaining parts of the question assume that PWS uses the FVE method. c) Prepare an acquisition differential and impairment schedule for 2021. Provide references for each line in the AD schedule that will be used to reference through to the consolidated financial statements. (10 marks) d) Prepare a list of all intercompany transactions and balances that are pertinent to the case facts and should be eliminated upon consolidation. ( 4 marks) e) Calculate all unrealized and realized intercompany profits. Include a calculation of the total deferred tax assetliability. (12 marks) f) Prepare PWS's consolidated statement of comprehensive income for the year ended December 31, 2021. Show the allocation between the parent and the NCl. (18 marks) through to the consolidated financial statements. (10 marks) d) Prepare a list of all intercompany transactions and balances that are pertinent to the case facts and should be eliminated upon consolidation. (4 marks) e) Calculate all unrealized and realized intercompany profits. Include a calculation of the total deferred tax asset/liability. (12 marks) f) Prepare PWS's consolidated statement of comprehensive income for the year ended December 31, 2021. Show the allocation between the parent and the NCl. (18 marks) g) Prepare PWS's consolidated statement of retained earnings for the year ended December 31, 2021. (4 marks) h) Calculate the NCl on the statement of financial position as at December 31, 2021. (4 mark) i) Prepare PWS's consolidated statement of financial position as at December 31 , 2021. (18 marks) Pure Waste Systems Inc. (PWS) is a Canadian public company. On December 31, 2020, PWS acquired common shares of Sewer Waste Corp. (SWC). Below are three independent questions based on different scenarios for the number of shares acquired and how the shares are acquired. All the scenarios' share the same initial financial data. SWC's comparative statement of financial position as at December 31,2021 , and its statement of comprehensive income for the year ended December 31, 2021 are as follows: Sewer Waste Corp. Statement of financial position As at December 31 The fair value of each of SWC's identifiable net assets at time of acquisition is as follows: (in $000s ) (Assume that all assets have no residual values at the and of thair useful lives.) Additional information: 1. Both companies pay income tax at a rate of 40%. 2. Both companies use the straight-line method of depreciation and both companies use first in, first out (FIFO) to value their inventories. 3. Assume any fair value difference on the long-term debt is amortized using the straight-line method. 4. PWS established that SWC is a cash-generating unit (CGU) subject to impairment testing. 5. On June 30, 2021, SWC sold land to PWS for $130,000. SWC's net book value at time of sale was $50,000, which was the same as the estimated fair value at acquisition date of the associate. In consideration of the transfer, PWS paid $30,000 cash and signed a note payable to SWC for the $100,000 balance. The note is payable in full on June 30,2024 . Interest at 5% is payable annually with the first payment doe on June 30,2022. 6. During 2021, PWS sold goods to SWC for $120,000 including a 30% gross profit margin; 40% of these goods remained unsold by SWC as at December 31, 2021. 7. During 2021, sWC sold goods to PWS for $170,000 including a 50% gross profit margin; 10% of these goods remained unsold by PWS as at December 31, 2021. 8. During 2021, SWC incurred management fee expense from PWS at a total cost of $25,000. This amount remained unpaid at year end. SWC recorded this as an SG\&A expense while PWS recorded it as other income. 9. On September 1, 2021, PWS sold equipment to SWC for $100,000 cash. PWS's carrying value of the equipment, which had a remaining useful life of ten years, was $90,000. The gain was recorded in other income. 10. Both PWS and SWC paid dividends during the year ended December 31 , 2021. 11. PWS and SWC only prepare adjusting entries at year end. QUESTION #1 (10 Marks) Assume that on December 31,2020 . PWS paid $1,300,000 cash to acquire 100% of the net assets of SWC. Required: a) Calculate and allocate the acquisition differential including determination of the goodwill arising on the acquisition of the net assets of SWC. (5 marks) b) Prepare PWS's journal entry to record the acquisition. Support the journal entry with abrief explanation as to its nature. ( 5 marks) QUESTION # 2 (10 marks) Now assume that on December 31,2020 , PWS issued 100,000 of its common shares to acquire 100% of the common shares of SWC. PWS's common shares were actively traded at $13 at acquisition date. PWS disbursed $35,000 cash to pay for costs directly related to the acquisition of SWC and an additional $28,000 cash to pay for the cost of issuing the additional shares. PWS's non-consolidated statement of financial position as at December 31, 2020, which was prepared after all PWS's year-end adjustments had been processed but which does not include the investment made in SWC described in the points above, is as follows: Pure Waste Systems Inc. Statement of financial position As at December 31, 2020 Required: Prepare PWS's consolidated statement of financial position at the December 31, 2020, acquisition date. Question 3 ( 80 marks) Now assume that on December 31,2020 . PWS paid $980,000 cash to acquire 70% of SWC's outstanding common shares. (No additional costs were incurred.) PWS tested the CGU for impairment on December 31, 2021. Goodwill was found to be impaired by $80,000. PWS's non-consolidated comparative statement of financial position as at December 31, 2021, and its non-consolidated statement of comprehensive income for the year ended December 31, 2021, are set out below: Pure Waste Systems Inc. Statement of comprehensive income For the year ended December 31,2021 (in '000s) Required: a) Use the acquisition method to allocate the acquisition differential and determine goodwill arising on acquisition, assuming that PWS uses the identifiable net assets (INA) method to value the non-cor Illing interest (NCI). (5 marks) b) Use the acquisition method to allocate the acquisition differential and determine goodwill arising on acquisition, assuming that PWS uses the fair value enterprise (FVE) method to value the NCl. (5 marks) For all remaining parts of the question assume that PWS uses the FVE method. c) Prepare an acquisition differential and impairment schedule for 2021. Provide references for each line in the AD schedule that will be used to reference through to the consolidated financial statements. (10 marks) d) Prepare a list of all intercompany transactions and balances that are pertinent to the case facts and should be eliminated upon consolidation. ( 4 marks) e) Calculate all unrealized and realized intercompany profits. Include a calculation of the total deferred tax assetliability. (12 marks) f) Prepare PWS's consolidated statement of comprehensive income for the year ended December 31, 2021. Show the allocation between the parent and the NCl. (18 marks) through to the consolidated financial statements. (10 marks) d) Prepare a list of all intercompany transactions and balances that are pertinent to the case facts and should be eliminated upon consolidation. (4 marks) e) Calculate all unrealized and realized intercompany profits. Include a calculation of the total deferred tax asset/liability. (12 marks) f) Prepare PWS's consolidated statement of comprehensive income for the year ended December 31, 2021. Show the allocation between the parent and the NCl. (18 marks) g) Prepare PWS's consolidated statement of retained earnings for the year ended December 31, 2021. (4 marks) h) Calculate the NCl on the statement of financial position as at December 31, 2021. (4 mark) i) Prepare PWS's consolidated statement of financial position as at December 31 , 2021. (18 marks)