Laugh’n A Half Limited acquired all the shares in Silverflame Limited for a 550,000 cash consideration. The shares were acquired on a cum. div. basis. At acquisition date, Silverflame Limited had declared a dividend of 90,000. The equity of Silverflame Limited at acquisition date consisted of:
Share Capital $250,000
Retained Earnings $60,000
All of the identifiable net assets were recorded at their fair value in the books of Silverflame Limited, except for its buildings which had, at acquisition date, a recorded cost of 60,000, accumulated depreciation of 15,000, and a fair value of 65,000.
The tax rate is 30%.
The pre-acquisition entry on acquisition date is:
a.
Dr Retained Earnings $ 60,000
Dr Share Capital $ 250,000
Dr BCVR $ 240,000
Cr Investment in Silverflame $ 460,000
Cr Revenue from Dividends $ 90,000
b.
Dr Retained Earnings $ 60,000
Dr Share Capital $ 250,000
Dr Building $ 14,000
Dr Goodwill $ 226,000
Cr Investment in Silverflame $ 550,000
c.
Dr Retained Earnings $ 60,000
Dr Share Capital $ 250,000
Dr BCVR $ 150,000
Cr Investment in Silverflame $ 460,000:
d.
Dr Retained Earnings $ 60,000
Dr Share Capital $ 250,000
Dr Building $ 14,000
Dr Goodwill $ 136,000
Cr Investment in Silverflame $ 460,000
Cr Revenue from Dividends $ 90,000
e.
Dr Retained Earnings $ 60,000
Dr Share Capital $ 250,000
Dr BCVR $ 240,000
Cr Investment in Silverflame $ 550,000
q2:Willy Limited purchased 100% of the shares in Nelson Limited on 1 July 2020, for a cash consideration of $ 1,200,000. On that date, the equity balances of Axton Limited were:
Share Capital $950,000
Retained Earnings $350,000
All of the identifiable net assets were recorded at their fair value in the books of Axton Limited. The tax rate is 30%. The pre-acquisition entry on 30 June 2022 would include a:
a.
Cr Gain on Bargain Purchase $ 100,000
b.
Dr Goodwill $ 100,000
c.
Dr BCVR $ 70,000
d.
None of the other options.
e.
Dr Retained Earnings (1/7/21) $ 250,000
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