Question
Question 2 (25 marks) On September 1, 2014, Sunshine Ltd. acquired all the assets (with the exception of cash) and liabilities of Moonbeam Ltd. Under
Question 2 (25 marks) On September 1, 2014, Sunshine Ltd. acquired all the assets (with the exception of cash) and liabilities of Moonbeam Ltd. Under the terms of acquisition, Moonbeam shareholders received 3 Class A Sunshine Ltd. shares plus $2.00 cash for every four shares of Moonbeam. At the acquisition date, Sunshine?s Class A shares were valued at $2.50 per share. Sunshine had agreed to cover Moonbeam?s estimated liquidation costs of $10,000. The $1,500 of cash in Moonbeam?s bank at the acquisition date will go towards paying these costs. The statements of financial position at the acquisition date are as follows: Sunshine Moonbeam Ltd. Ltd. Cost FMV Cash $ 30,000 $ 1,500 $ 1,500 Accounts receivable 52,500 28,500 26,250 Inventory 78,000 39,750 48,000 Property and equipment (net) 449,250 224,250 248,250 Kucey Ltd. bonds (investment) _67,500 _27,000 28,500 677,250 321,000 Accounts payable 117,000 114,000 114,000 Loan payable ___-___ _60,000 60,000 117,000 174,000 Share capital issued at $1 450,000 120,000 Retained earnings 110,250 _27,000 560,250 147,000 $ 677,250 $ 321,000 Items not reflected in Moonbeam?s statement of financial position: ? Contingent liability related to a loan guarantee was reported in the notes to the financial statements and has a fair value of $2,000. ? Moonbeam had expensed $15,000 in research and development costs in the past year. At the acquisition date, Sunshine has determined that the value of the research in progress is $3,000. Sunshine?s statement of financial position does not include $5,000 in fees for valuation and accounting advice related to the acquisition of Moonbeam. Sunshine expects to pay these fees shortly. Required: a) Prepare the acquisition analysis and calculate the goodwill. b) Prepare all the journal entries in Sunshine?s books to record the acquisition of Moonbeam. c) Prepare Sunshine?s statement of financial position immediately following the acquisition. Question 3 (40 marks) On May 1, 2013, Peat Co. purchased all of Sorbet Ltd.?s issued common shares for $630,000. At the acquisition date, Sorbet?s financial statements included the following balances: Share capital $400,000 Retained earnings 210,000 Goodwill 10,000 At the acquisition date, Sorbet?s identifiable assets and liabilities were equal to their fair values, except in the case of inventory that had a book value of $80,000 and a fair value of $86,000, and equipment that had a book value of $360,000 and a fair value of $370,000. The equipment was originally purchased for $480,000. At the acquisition date, the equipment had a remaining useful life of 5 years and was amortized using the straight-line method. All the inventory that Sorbet had on hand at the acquisition date was sold by October 2013. Sorbet?s goodwill has not shown indications of impairment. Both Peat and Sorbet have April 30th year-ends and did not have any intercompany sales with each other. The financial statements for Peat and Sorbet at April 30, 2015 are presented on the following pages. ? Statement of Financial Position April 30, 2015 Peat Co. Sorbet Ltd. Assets: Current assets: Cash $ 52,000 $ 161,600 Accounts receivable 100,000 80,000 Inventory 120,000 170,000 272,000 411,600 Non-current assets: Equipment, net 558,000 368,000 Furniture and fixtures, net 51,000 51,600 Investment in Sorbet Ltd. 630,000 - Goodwill ___-___ 10,000 1,239,000 429,600 Total assets $ 1,511,000 $ 841,200 Liabilities and shareholders? equity: Current liabilities: Accounts payable $ 69,000 $ 19,600 Non-current liabilities: Loan payable 22,000 32,000 Total liabilities 91,000 51,600 Shareholders? equity: Share capital 1,000,000 400,000 Retained earnings 420,000 389,600 1,420,000 789,600 Total liabilities and shareholders? equity $ 1,511,000 $ 841,200 Condensed Statement of Income For the year ended April 30, 2015 Peat Co. Sorbet Ltd. Sales $ 250,000 $ 180,000 Expenses 170,000 130,000 Net income $ 80,000 $ 50,000 ? Statement of Changes in Equity For the year ended April 30, 2015 Peat Co. Sorbet Ltd. Share capital $ 1,000,000 $ 400,000 Retained earnings, May 1, 2014 340,000 339.600 Net income 80,000 50,000 Retained earnings, April 30, 2015 420,000 389,600 Total shareholders? equity $ 1,420,000 $ 789,600 Required: Prepare Peat?s consolidated financial statements for April 30, 2015. Ignore income taxes. ? Question 4 (20 marks) On June 30, 2014, Pewter Ltd. gave 28,000 shares to Sterling Co. in exchange for 70% of Sterling?s outstanding shares. At the time of the exchange, Pewter?s shares had a fair value of $22.50 per share. The post-acquisition statements of financial position and Sterling?s fair values are shown below. Statement of Financial Position As of June 30, 2014 Sterling Co.______ Pewter Ltd. Book value Fair Value Assets: Current assets: Cash $ 750,000 $ 37,500 $ 37,500 Accounts receivable 1,500,000 112,500 112,500 Inventory 150,000 37,500 37,500 2,400,000 187,500 Non-current assets: Land 750,000 225,000 300,000 Equipment 2,250,000 375,000 412,500 Accumulated amortization (900,000) (112,500) Investment in Sterling 630,000 __ -___ 2,730,000 487,500 Total assets $ 5,130,000 $ 675,000 Liabilities and shareholders? equity: Current liabilities: Accounts payable $ 750,000 $ 75,000 75,000 Loan payable 300,000 _____ 1,050,000 75,000 Shareholders? equity: Common shares 2,580,000 150,000 Retained earnings 1,500,000 450,000 4,080,000 600,000 Total liabilities and shareholders? equity $ 5,130,000 $ 675,000 Required: a) Calculate Pewter?s consolidated goodwill. b) Prepare Pewter?s consolidated statement of financial position at June 30, 2014 using the entity theory method of consolidation.
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