Question 1 -
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, Sunshine's Class A shares were valued at $2.50 per share. Sunshine had agreed to cover Moonbeam's estimated liquidation costs of $10,000. The $1,500 of cash in Moonbeam's bank at the acquisition date will go towards paying these costs. The statements of financial position at the acquisition date are as follows:
Sunshine Ltd. Moonbeam 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 Moonbeam's 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.
Sunshine's 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:
a) Prepare the acquisition analysis and calculate the goodwill.
b) Prepare all the journal entries in Sunshine's books to record the acquisition of Moonbeam.
c) Prepare Sunshine's statement of financial position immediately following the acquisition.
Question 2 -
On May 1, 2013, Peat Co. purchased all of Sorbet Ltd.'s issued common shares for $630,000. At the acquisition date, Sorbet's financial statements included the following balances:
Share capital $400,000
Retained earnings 210,000
Goodwill 10,000
At the acquisition date, Sorbet's identifiable assets and liabilities were equal to their fair values, except in the case of inventory that had a book value of $80,000 and a fair value of $86,000, and equipment that had a book value of $360,000 and a fair value of $370,000. The equipment was originally purchased for $480,000. At the acquisition date, the equipment had a remaining useful life of 5 years and was amortized using the straight-line method. All the inventory that Sorbet had on hand at the acquisition date was sold by October 2013. Sorbet's goodwill has not shown indications of impairment. Both Peat and Sorbet have April 30th year-ends and did not have any intercompany sales with each other.
The financial statements for Peat and Sorbet at April 30, 2015 are presented on the following pages.
Statement of Financial Position April 30, 2015
Peat Co. Sorbet Ltd.
Assets:
Current assets:
Cash $ 52,000 $ 161,600
Accounts receivable 100,000 80,000
Inventory 120,000 170,000
272,000 411,600
Non-current assets:
Equipment, net 558,000 368,000
Furniture and fixtures, net 51,000 51,600
Investment in Sorbet Ltd. 630,000 -
Goodwill ___-___ 10,000
1,239,000 429,600
Total assets $ 1,511,000 $ 841,200
Liabilities and shareholders' equity:
Current liabilities:
Accounts payable $ 69,000 $ 19,600
Non-current liabilities:
Loan payable 22,000 32,000
Total liabilities 91,000 51,600
Shareholders' equity:
Share capital 1,000,000 400,000
Retained earnings 420,000 389,600
1,420,000 789,600
Total liabilities and shareholders' equity $ 1,511,000 $ 841,200
Condensed Statement of Income For the year ended April 30, 2015
Peat Co. Sorbet Ltd.
Sales $ 250,000 $ 180,000
Expenses 170,000 130,000
Net income $ 80,000 $ 50,000
Statement of Changes in Equity For the year ended April 30, 2015
Peat Co. Sorbet Ltd.
Share capital $ 1,000,000 $ 400,000
Retained earnings, May 1, 2014 340,000 339.600
Net income 80,000 50,000
Retained earnings, April 30, 2015 420,000 389,600
Total shareholders' equity $ 1,420,000 $ 789,600
Required: Prepare Peat's consolidated financial statements for April 30, 2015. Ignore income taxes.
Question 3 -
On June 30, 2014, Pewter Ltd. gave 28,000 shares to Sterling Co. in exchange for 70% of Sterling's outstanding shares. At the time of the exchange, Pewter's shares had a fair value of $22.50 per share. The post-acquisition statements of financial position and Sterling's fair values are shown below.
Statement of Financial Position As of June 30, 2014
Sterling Co.______
Pewter Ltd. Book value Fair Value
Assets:
Current assets:
Cash $ 750,000 $ 37,500 $ 37,500
Accounts receivable 1,500,000 112,500 112,500
Inventory 150,000 37,500 37,500
2,400,000 187,500
Non-current assets:
Land 750,000 225,000 300,000
Equipment 2,250,000 375,000 412,500
Accumulated amortization (900,000) (112,500)
Investment in Sterling 630,000 __ -___
2,730,000 487,500
Total assets $ 5,130,000 $ 675,000
Liabilities and shareholders' equity:
Current liabilities:
Accounts payable $ 750,000 $ 75,000 75,000
Loan payable 300,000 _____
1,050,000 75,000
Shareholders' equity:
shares 2,580,000 150,000
Retained earnings 1,500,000 450,000
4,080,000 600,000
Total liabilities and shareholders' equity $ 5,130,000 $ 675,000
Required:
a) Calculate Pewter's consolidated goodwill.
b) Prepare Pewter's consolidated statement of financial position at June 30, 2014 using the entity theory method of consolidation.