Question 2 (15 marks) On 1 April 2020, Pine Company acquired 85% of controlling interest in Summer Company. The following transactions arose on the acquisition date. Issue 300,000 shares to owners of Summer Company: Fair value per share of Pine Company at date of share issue 1.2 Cost of issuing shares 25,000 Motor vehicle transferred in settlement by Pine Company: Net book value of motor vehicle 120,000 Fair value of motor vehicle 135,000 Deferred cash payment to owners of Summer: Amount payable at the end of 3 years 500,000 Present value of the payment at an interest rate of 5% p.a. 431,919 Immediate cash payment to owners of Summer Company 850,000 Due diligence fees paid to consultants 22,000 Loan payable to banks to finance the acquisition of Summer Company 420,000 Contingent payment to Pine Company by the sellers: Amount payable at the end of 2 years 150,000 Present value of the payment at an interest rate of 5% p.a. 136,054 Condition: The existing owners of Summer Company undertook to pay Pine Company if the net profits of Summer company fall below $1,000,000 for any year in the following 2 years. Probability: 30% of chance that Summer Company will earn a net profit of lower than $1,000,000 in the following 2 years. Required: Prepare the journal entries in Pine's books to record the following transactions on 1 April 2020: (a) Consideration transferred (unamortized discount or premium, where applicable, should be shown separately). (b) Remeasurement gain or loss on equipment transferred. (c) Loan proceeds from banks. (d) Acquisition-related costs. Question 2 (15 marks) On 1 April 2020, Pine Company acquired 85% of controlling interest in Summer Company. The following transactions arose on the acquisition date. Issue 300,000 shares to owners of Summer Company: Fair value per share of Pine Company at date of share issue 1.2 Cost of issuing shares 25,000 Motor vehicle transferred in settlement by Pine Company: Net book value of motor vehicle 120,000 Fair value of motor vehicle 135,000 Deferred cash payment to owners of Summer: Amount payable at the end of 3 years 500,000 Present value of the payment at an interest rate of 5% p.a. 431,919 Immediate cash payment to owners of Summer Company 850,000 Due diligence fees paid to consultants 22,000 Loan payable to banks to finance the acquisition of Summer Company 420,000 Contingent payment to Pine Company by the sellers: Amount payable at the end of 2 years 150,000 Present value of the payment at an interest rate of 5% p.a. 136,054 Condition: The existing owners of Summer Company undertook to pay Pine Company if the net profits of Summer company fall below $1,000,000 for any year in the following 2 years. Probability: 30% of chance that Summer Company will earn a net profit of lower than $1,000,000 in the following 2 years. Required: Prepare the journal entries in Pine's books to record the following transactions on 1 April 2020: (a) Consideration transferred (unamortized discount or premium, where applicable, should be shown separately). (b) Remeasurement gain or loss on equipment transferred. (c) Loan proceeds from banks. (d) Acquisition-related costs
