On 1 January 2022, A Co purchased 90% of the equity of B Co from B's...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
On 1 January 2022, A Co purchased 90% of the equity of B Co from B's existing owners. The following transactions arose on or just prior to the acquisition date. Transaction costs are paid in cash. Number of A's shares issued to B's existing owners Immediate cash payment Due diligence fees paid to consultants Cost of issuing shares Equipment transferred in settlement by A: Net book value of equipment Fair value of equipment Contingent payment by sellers to A Notes: 1,200,000 Note (1) $170,000 $6,000 $4,000 $25,000 $30,000 $500,000 Note (2) (1) The number of A's shares before the new issue is 1,800,000. At the date of exchange of shares, fair value of the equity of A is $3,000,000, which includes the effects of the acquisition of B. (2) Under the agreement, the sellers have an obligation to pay an amount of $500,000 if the profit of B drops below $900,000 per year in 2022 and 2023. The probability of payment is estimated at 40%. (3) A's effective interest rate is 2% per annum. Required: Prepare the journal entries in A's books to record (a) consideration transferred, (b) acquisition related costs, and (c) other transactions entered into on 1 January 2022. Unamortized discount or premium, where applicable, should be shown separately. On 1 January 2022, A Co purchased 90% of the equity of B Co from B's existing owners. The following transactions arose on or just prior to the acquisition date. Transaction costs are paid in cash. Number of A's shares issued to B's existing owners Immediate cash payment Due diligence fees paid to consultants Cost of issuing shares Equipment transferred in settlement by A: Net book value of equipment Fair value of equipment Contingent payment by sellers to A Notes: 1,200,000 Note (1) $170,000 $6,000 $4,000 $25,000 $30,000 $500,000 Note (2) (1) The number of A's shares before the new issue is 1,800,000. At the date of exchange of shares, fair value of the equity of A is $3,000,000, which includes the effects of the acquisition of B. (2) Under the agreement, the sellers have an obligation to pay an amount of $500,000 if the profit of B drops below $900,000 per year in 2022 and 2023. The probability of payment is estimated at 40%. (3) A's effective interest rate is 2% per annum. Required: Prepare the journal entries in A's books to record (a) consideration transferred, (b) acquisition related costs, and (c) other transactions entered into on 1 January 2022. Unamortized discount or premium, where applicable, should be shown separately.
Expert Answer:
Answer rating: 100% (QA)
Answer a Consideration transferred 1 Dr Equipment 25000 2 Dr Investment in B C... View the full answer
Related Book For
Posted Date:
Students also viewed these accounting questions
-
You have an obligation to pay $1,488 in four years and 2 months. In which bond would you invest your $1,000 to accumulate this amount, with relative certainty, even if the yield on the bond declines...
-
You have an obligation to pay $1,000,000 in 3 years from now, and you would like to make an investment now that will enable you to meet this obligation. This investment will be a portfolio containing...
-
Stefan company management concluded in January 2020 that they believe the company has sufficient funds to undertake some short-term investment in bonds and stocks, all investments are considered to...
-
Consider the following the flat database table: FName LName Address California Florida New Jersey California Mark Maria John Mark John Smith Cruise Hareson Smith Hareson Course code TM366 TM366 TM112...
-
1. What are some of the things that successful MNCs do to effectively motivating European employees? 2. What kinds of incentives do scientific and technical employees respond to that might not be as...
-
Scott, an urban planner, models the population P(t) (in thousands) of his community t years from now by the function a. What is the current population of the community? b. By how much does the...
-
The hydraulic turbine shown in Fig. P5.85 has a \(10{ }^{\circ} \mathrm{C}\) water flow rate of \(36.4 \mathrm{~m}^{3} / \mathrm{s}\), an inlet radius \(R_{1}=1.0 \mathrm{~m}\), an outlet radius...
-
Refer to the Creative Technology example on delaying write-downs of current assets. How much excess inventory do you estimate Creative Technology is holding in March 2005 if the firms optimal days...
-
How would you react to your instructor's suggestion to incorporate a data component into an assignment for your non-math-related course?
-
Thunder Attractions, an amusement park, is considering a capital investment in a new exhibit. The exhibit would cost 136,000 and have an estimated useful life of 5 years. It will be sold for 60,000...
-
4. Vaughn Manufacturing exchanged 3,350 shares of its common stock for equipment purchased from a vendor. The Vaughn common stock had a par value of $53.20 per share. On the date of exchange, the...
-
Which activity results in an increase to accounts payable? a. Request prices b. Place purchase order c. Receive items d. Return rejected items e. Send payment
-
Which of the following best describes the value of business models? a. A communication tool b. A planning tool c. A process improvement tool d. A tool for managing complexity e. All of these describe...
-
Which of the following is true about intermediate timer events? a. The process delays until a specific date or time. b. The process delays until a message is thrown. c. The process delays for an...
-
Which of the following activities results in work-in-process moving to finished goods inventory? a. Authorize production b. Inspect work c. Complete production d. Issue raw material e. None of these...
-
Which of the following is not an activity in the purchases and payments process? a. Request prices b. Receive items c. Pay for items d. Bill customers e. All are activities in the purchases and...
-
Direct Materials and Direct Labor cost of producing vacuums Factory rent and supervisor salaries Total Costs Total 315,000 150,000 465,000 21,000 Customer A Vacuums produced and sold Price paid for...
-
Explain briefly what is meant by electronic data interchange (EDI). How does EDI affect a companys audit trail?
-
The Accounts Receivable balance at January 1, 2010, for formen Corp. was $512,100. Of that balance, $432,000 represents remaining Accounts Receivable from December billings. The normal collection...
-
The following information pertains to the operations of Wilkes Investigating, a private detective agency, for December 2009. Wilkess employees earn $420 of salary collectively each day. The...
-
All business transactions affect assets (resources owned), liabilities (amounts owed), stockholders equity (ownership interest), or some combination of these items. Following is an analysis of the...
-
Figure P32.94 shows, for an AC circuit, the instantaneous current through a circuit element and the potential difference across the element. What can you determine about the element? Data from Figure...
-
The circuit in Figure P32.96 represents your planned design for a wall power supply that will run a radio that usually runs on a 9-V battery. The power supply uses a transformer (not shown) to...
-
Your boss has purchased a new AC power source to run a high-voltage, low-current display, but it is not working. While he is fuming, you look at the owner's manual and discover that this power source...
Study smarter with the SolutionInn App