Tailor Ltd. is seeking to expand its share of the pet care market and has negotiated to acquire the operations of Flathead Ltd. and the shares of Flexon Ltd.

At January 1, 2013, the trial balances of the three companies were:

Flathead
Tailor is to acquire all assets (except cash and shares in listed companies) of Flathead. Acquisition-related costs are expected to be $7,600. The net assets of Flathead are recorded at fair value except for the following:

In exchange, the shareholders of Flathead are to receive, for every three Flathead shares held, one Tailor share worth $2.50 each. Costs to issue these shares are $950. Additionally, Tailor will transfer to Flathead its Shares in Listed Companies asset, which has a fair value of $15,000. These shares, together with those already owned by Flathead, will be sold and the proceeds distributed to the Flathead shareholders. Assume that the shares were sold for their fair values.
Tailor will also give Flathead sufficient additional cash to enable Flathead to pay all its creditors. Flathead will then liquidate. Liquidation costs are estimated to be $8,700. Flexon
Tailor is to acquire all the issued shares of Flexon. In exchange, the shareholders of Flexon are to receive one Tailor share, worth $2.50, and $1.50 cash for every two Flexon shares held.
Required
(a) Prepare the acquisition analysis and journal entries to record the acquisitions in the records of Tailor.
(b) Explain in detail why, if Flathead has recorded a goodwill asset of $5,000, Tailor calculates the goodwill acquired via an acquisition analysis. Why does Tailor not determine a fair value for the goodwill asset and record that figure as it has done for other assets acquired from Flathead?
(c) If Tailor subsequently receives a dividend cheque for $1,500 from Flexon, how should Tailor account for that cheque? Why?
(d) Shortly after the business combination, the liquidator of Flathead receives a valid claim of $25,000 from a creditor.
As Tailor has agreed to provide sufficient cash to pay all the liabilities of Flathead at acquisition date, the liquidator requests and receives a cheque for $25,000 from Tailor. How should Tailor record this payment? Why?

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Tailor Flathead Flexon Cash Accounts receivable Inventory Shares in listed companies Land and buildings (net) Property, plant, and equipment (net) Goodwill (net) $145,000 34,000 56,000 16,000 70,000 130,000 6,000 $457,000 65,000 $ 5,200 21,300 30,000 22,000 40,000 105,000 5,000 $228,500 $ 40,000 84,000 12,000 25,400 7,000 36,000 25,000 5,600 $195,000 $ 29,000 1,500 100,000 Accounts payable Bank overdraft Bonds Mortgage loan Contributed equity: 50,000 100,000 30,000 150,000 6,500 2,000 $228,500 Common shares of $1 200,000 15,000 27,000 $457,000 60,000 2,500 2,000 $195,000 Other reserves Retained earnings (31/12/13) Inventory Land and buildings Shares in listed companies Accounts payable Accrued vacation pay Carrying amount Fai alue $26,000 80,000 18,000 (49,100) (29,700) $30,000 40,000 22,000 (40,000)