Question Three: (14 marks) (B1, C1, C2)

Zain Corporation acquired 95% of VIVA Companys outstanding common stock for $300,000 cash on April 31, 2019. Out-of-pocket costs of the business combination may be disregarded. VIVA's stockholders' equity on April 31, 2019, was as follows:

Common stock, $2 par $ 100,000

Additional paid in capital 75,000

Retained earnings 125,000.

Total stockholder's equity $300,000

The April 31, 2019 (date of business combination) working paper elimination (in journal entry format) for Zain Corporation and subsidiary include the following:

	Dr	Cr
Land	$20,000
Building (net) (10-year economic life)		$50,000
Patent (net) (8-year economic life)	$20,000

Additional Information:

• Goodwill resulting from the business combination was impaired by 15% every year. Zain used the straight-line method for depreciation and amortization.
• During the fiscal year ended April 31, 2020, Zain had a net income of $1.5 a share and declared and paid $100,000 dividends.

Instructions:

1. Prepare Zain Corporations journal entries to record the business combination of Zain and VIVA Company on April 31, 2019. (4 marks).
2. Prepare Zain Corporations journal entries, under the equity method of accounting, to record VIVA Company's operating results for the fiscal year ended April 31, 2020 (10 marks).