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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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