QUESTION SEVEN: Business combinations - direct acquisitions (Total: 4marks)

Sarah Ltdpurchasedalltheassets(except cash) and assumed all the liabilitiesofLeeLtdon1July2021forthe purchase considerationof:

2 shares in Sarah Ltd for every 10 shares in Lee Ltd. The market value ofSarah Ltd.'s shares was $11.00 at the transfer date.

Sarah Ltd will also pay the liquidation expenses of Lee Ltd of $15,000.

The Balance sheets of Sarah Ltd and Lee Ltd on 1 July 2021 were asfollows:

Assets	Sarah Ltd.	Lee Ltd
Buildings	1,400,000	500,000
Furniture & Fittings	560,000	30,000
Inventory	100,000	110,000
Accounts receivable	120,000	70,000
Cash	140,000	-
Liabilities
Accounts payable	(260,000)	(150,000)
Loan payable	(100,000)	(250,000)
	1,960,000	310,000
Equity
Share capital of $1 each	1,200,000	250,000
Retained profits	760,000	60,000
	1,960,000	310,000

All the net assets of Lee Ltd were recorded at fair value except for thefollowing:

ACCOUNT	($)
Buildings	780,000

There was also an unrecognized provision for annual leave (a liability account) of $13,000.

The business combination was completed and Lee Ltd went into liquidation.

REQUIRED:

1. journal entries (including cash) pertaining to the above transaction in the books of SarahLtd on 1 July2021. Ignore any tax impact. (3marks)

1. What is the reported retained profit of Sarah Ltd after the acquisition of Lee Ltd is completed? (1 mark)