Question
Thomas Ltd purchased from Edison Ltd the following parcel of assets and liabilities representing a business. In exchange for these assets and liabilities, Thomas Ltd
Thomas Ltd purchased from Edison Ltd the following parcel of assets and liabilities representing a business. In exchange for these assets and liabilities, Thomas Ltd issued 30,000 shares, and the fair value of each share at the acquisition date is $2.20. After the transaction, Edison Ltd continued in business otherwise unaffected.
Cost ($) | Carrying amount ($) | Fair value ($) | |
---|---|---|---|
Accounts receivable | 19 000 | 18 000 | 16 000 |
Machinery | 100 000 | 75 000 | 80 000 |
Accounts payable | 4 000 | 4 000 | 4 000 |
Additional information:
Edison Ltd had not recorded a legal claim as a liability due to the uncertainty of an outcome. Thomas Ltd estimated the fair value of this contingent liability to be $20,000.
Required:
a) Prepare all necessary journal entries to record the above acquisition. (Using the provided journal entry template to enter your answer; workings/calculations or narrations are NOT required.)
b) If the parcel of assets and liabilities does not represent a business, list any accounts that would be recorded in a) but should not be recognized anymore in Thomas Ltd's record. Explain the reason.
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