Furniture Co. is a retailer that sells furniture. Alfred Co. has approached the company with an...

 

 

Transcribed Image Text:

Furniture Co. is a retailer that sells furniture. Alfred Co. has approached the company with an offer of purchase on December 31, 2021. Presented below is the balance sheet of Furniture Co. at December 31, 2021 before the acquisition, followed by accompanying notes. Column A Column B Column C Column D Furniture Co. Furniture Co. Furniture Co. Furniture Co. Balance Sheet Balance Sheet Balance Sheet Balance Sheet (Immediately after acquisition) after acquisition) As at December (Immediately As at December 31, 2021 31, 2021 $ CAD (Fair $ CAD (Carrying Values) $ CAD (Carrying $ CAD (Carrying Values) Values) Values) Current Assets Cash 100,100 Accounts Receivable, net (note 1) Inventory, net (note 2) 150,000 225,000 Total Current Assets 475,100 Long-term Assets (note 3) Machinery Acc. depreciation, machinery Computers Acc. depreciation, computers 600,000 120,000 480,000 20,000 8,000 488,000 12,000 Total Long-term Assets Total Assets 963,100 Current Liabilities Accounts payable and accruals Bank loan payable (note 5) 150,000 80,000 Total Current Liabilities 230,000 Long-term Liabilities Note payable (note 4) 80,000 Bank loan payable (note 5) 320,000 Total Long-term liabilities 400,000 Equity Common shares 100 Shareholders' equity 333,000 Total Equity 333,100 Total Liabilities and Equity 963,100 Notes to the Balance Sheet: 1. Receivables worth $40,000 are deemed to be uncollectible as of the acquisition date. 2. Inventory worth $30,000 is deemed to be damaged, but of this damaged inventory, $5,000 can be salvaged and reused. 3. The machinery can be resold to third parties for $520,000. The computers are deemed to have a market value of $5,000. The company uses the net method for revaluation of property, plant and equipment. 4. The note payable is owing to the owner of the company and will be paid out of cash before the acquisition date. 5. There is an upcoming loan payment of $20,000 expected to come out of the bank account before the acquisition. The bank loan will be transferred over to the new owners of the company. 6. Furniture Co. has developed their own technology to increase the efficiency of their table production. An outside third party has valued this technology at $375,000. 7. A former employee was injured on the job and is suing the company. There is a reliable estimate of $100,000 to settle this litigation within the next 3 years. PART A Alfred Co. is offering Furniture Co. a combination of cash and shares as consideration for their company. Specifically, Alfred Co. is offering $600,000 in cash and the issuance of 500 common shares with a market value of $400/share to purchase Furniture Co.'s net assets. The issuance of Alfred Co.'s common shares do not affect Alfred Co.'s original control. 1) Using the notes provided, enter the fair values of each asset or liability (you can use Column /2.75 2) Record each of the following in relation to the acquisitio /4.5 a) The acquiree b) The acquirer c) The acquisition date d) The total consideration for the acquisition e) The value of goodwill/negative goodwill, if any 3) Record the journal entry for the acquirer (i.e. Alfred Co.). /3 4) Prepare the financial statements of the acquiree (Furniture Co.) after the acquisition (you can use Column C). 14 PART B Instead of purchasing the net assets, Alfred Co. has offered the same amount of consideration but for $800,000 in cash (i.e. no share consideration) to purchase 100% of Furniture Co.'s common shares. 1) Using the notes provided, record the journal entry for the acquirer and acquiree. 2) Prepare the financial statements of the acquiree (Furniture Co.) after the acquisition (you can use Column D). /6.5 /2 PART C Assume Alfred Co. is offering $550,000 in cash consideration instead of $800,000. Calculate the value of goodwill. /0.5 Furniture Co. is a retailer that sells furniture. Alfred Co. has approached the company with an offer of purchase on December 31, 2021. Presented below is the balance sheet of Furniture Co. at December 31, 2021 before the acquisition, followed by accompanying notes. Column A Column B Column C Column D Furniture Co. Furniture Co. Furniture Co. Furniture Co. Balance Sheet Balance Sheet Balance Sheet Balance Sheet (Immediately after acquisition) after acquisition) As at December (Immediately As at December 31, 2021 31, 2021 $ CAD (Fair $ CAD (Carrying Values) $ CAD (Carrying $ CAD (Carrying Values) Values) Values) Current Assets Cash 100,100 Accounts Receivable, net (note 1) Inventory, net (note 2) 150,000 225,000 Total Current Assets 475,100 Long-term Assets (note 3) Machinery Acc. depreciation, machinery Computers Acc. depreciation, computers 600,000 120,000 480,000 20,000 8,000 488,000 12,000 Total Long-term Assets Total Assets 963,100 Current Liabilities Accounts payable and accruals Bank loan payable (note 5) 150,000 80,000 Total Current Liabilities 230,000 Long-term Liabilities Note payable (note 4) 80,000 Bank loan payable (note 5) 320,000 Total Long-term liabilities 400,000 Equity Common shares 100 Shareholders' equity 333,000 Total Equity 333,100 Total Liabilities and Equity 963,100 Notes to the Balance Sheet: 1. Receivables worth $40,000 are deemed to be uncollectible as of the acquisition date. 2. Inventory worth $30,000 is deemed to be damaged, but of this damaged inventory, $5,000 can be salvaged and reused. 3. The machinery can be resold to third parties for $520,000. The computers are deemed to have a market value of $5,000. The company uses the net method for revaluation of property, plant and equipment. 4. The note payable is owing to the owner of the company and will be paid out of cash before the acquisition date. 5. There is an upcoming loan payment of $20,000 expected to come out of the bank account before the acquisition. The bank loan will be transferred over to the new owners of the company. 6. Furniture Co. has developed their own technology to increase the efficiency of their table production. An outside third party has valued this technology at $375,000. 7. A former employee was injured on the job and is suing the company. There is a reliable estimate of $100,000 to settle this litigation within the next 3 years. PART A Alfred Co. is offering Furniture Co. a combination of cash and shares as consideration for their company. Specifically, Alfred Co. is offering $600,000 in cash and the issuance of 500 common shares with a market value of $400/share to purchase Furniture Co.'s net assets. The issuance of Alfred Co.'s common shares do not affect Alfred Co.'s original control. 1) Using the notes provided, enter the fair values of each asset or liability (you can use Column /2.75 2) Record each of the following in relation to the acquisitio /4.5 a) The acquiree b) The acquirer c) The acquisition date d) The total consideration for the acquisition e) The value of goodwill/negative goodwill, if any 3) Record the journal entry for the acquirer (i.e. Alfred Co.). /3 4) Prepare the financial statements of the acquiree (Furniture Co.) after the acquisition (you can use Column C). 14 PART B Instead of purchasing the net assets, Alfred Co. has offered the same amount of consideration but for $800,000 in cash (i.e. no share consideration) to purchase 100% of Furniture Co.'s common shares. 1) Using the notes provided, record the journal entry for the acquirer and acquiree. 2) Prepare the financial statements of the acquiree (Furniture Co.) after the acquisition (you can use Column D). /6.5 /2 PART C Assume Alfred Co. is offering $550,000 in cash consideration instead of $800,000. Calculate the value of goodwill. /0.5

Answer rating: 100% (QA)

PART A 1 Carrying amount Adjustment Current assets Cash 100100 600000 4 80000 5 20000 6 375000 Accounts receivable net 150000 1 40000 Inventory net 225000 2 25000 Total Current Assets 475100 Long Term ... View the full answer