Question

Question 2 Week 8 (7 marks)

Answer 1

Answer: See explanation

Explanation:

a. Pass the necessary journal entry to record the acquisition.

Check the attachment. Note that common shares was calculated as:

= $800,000 × 1.5

= $1,200,000

b. Determine the amount of goodwill (or bargain purchase) arising out of the acquisition.

Fair value of assets acquired = $2,640,000

Less: fair value of liabilities = (720,000)

Net asset of S. LTD = 1,920,000

Purchase consideration = 1,000,000 + 1,200,000 = 2,200,000

Goodwill on acquisition will be:

= $2,200,000 - $1,920,000

= $280,000

c. Pass the necessary consolidation entry to eliminate the subsidiary by the parent company

Check the attachment

d. Determine the amount of goodwill (or bargain purchase) arising out of the acquisition if the purchase

consideration paid was $1,000,000 cash and 400,000 shares each valued at $1.50.

Fair value of assets acquired = $2,640,000

Less: fair value of liabilities = (720,000)

Net asset of S. Ltd = 1,920,000

Purchase consideration = (1,000,000 + 400,000) × 1.5 = 1,600,000

Bargain purchase on the acquisition will be:

= 1,920,000 - 1,600,000

= $320,000