Question 2

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, Sunshines Class A shares were valued at $2.50 per share. Sunshine had agreed to cover Moonbeams estimated liquidation costs of $10,000. The $1,500 of cash in Moonbeams 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 Moonbeams 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.

Sunshines 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:

1) Prepare the acquisition analysis and calculate the goodwill.

2) Prepare all the journal entries in Sunshines books to record the acquisition of Moonbeam.

3) Prepare Sunshines statement of financial position immediately following the acquisition.