Question 1 (9 marks)

The balance sheets of Parent and Sub on December 30, year 6 are as follows:

Parent Ltd.

Sub Ltd.

Cash and receivables

$96,000

57,000

228,000

24,000

$19,500 9,000

70.500

Inventory.

Plant assets (net)

Intangible Assets

Current Liabilities

6,000 $105.000

$30,000

$405.000

$63,000

Long Term Debt

97.500 153,000

91.500

$405.000

45,000 46.500

(16,500)

$105.000

Common Stock Retained Earnings (deficit)

On December 31, Year 6, Parent issued 350 shares with a fair value of $40 per share for 70% of the outstanding shares of Sub. Costs of $1,600 were incurred and paid in cash for issuing the shares. Costs of arranging the acquisition (legal and accounting costs) were $2,500. The book values of Sub's net assets were equal to their fair values on this date except for those below:

Fair Value

Plant Assets Long Term Debt

$65,000 $40,000

Parent was identified as the clear acquirer.

Required:

Assume that Parent prepares consolidated statements under the identifiable net asset (also known as parent company extension) theory.

a) Prepare a schedule to show the calculation of the acquisition differential, goodwill and non-controlling interest on the balance sheet at acquisition date, December 31, year 6. (6 marks)

b) Calculate the value of common shares on the consolidated balance sheet at December 31, year 6. (3 marks)