ch03a beechy ism
TRANSCRIPT
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Chapter 3 – Business Combinations
SSP 3A-1
(a)
100% Purchase of T Ltd., January 1, 20X2
Purchase price $260,000
Less carrying value of Target’s net identifiable assets (100%) (130,000)
= Fair value adjustment, allocated below 130,000
Carrying Value Fair Fair Value
FVA Allocated
(a) Value Adjustment
(b) (c)=(b)–(a)
Buildings (net) 150,000 250,000 100,000 100,000 Fair value adjustment allocated to net identifiable assets
($100,000)
Net asset carrying value $150,000
Fair value of assets acquired $250,000
Balance of FVA allocated to goodwill $30,000
(b)
100% Purchase of T Ltd., January 1, 20X2
Purchase price $260,000
Less carrying value of Target’s net identifiable assets (100%) (130,000)
= Fair value adjustment, allocated below 130,000
Carrying Value Fair Fair Value
FVA Allocated
(a) Value Adjustment
(b) (c)=(b)–(a)
Buildings (net) 150,000 250,000 100,000 100,000
Deferred tax liability @ 40% (40,000) (40,000) (40,000)Fair value adjustment allocated to net identifiable assets
($60,000)
Net asset carrying value $150,000
Fair value of assets acquired $210,000
Balance of FVA allocated to goodwill $70,000
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Chapter 3 – Business Combinations
SSP 3A-2
100% Purchase of Shelley Inc., January 1, 20X6
Purchase price $850,000
Less carrying value of Target’s net identifiable assets (100%) (450,000)
= Fair value adjustment, allocated below 400,000
Carrying Value Fair Fair Value
FVA Allocated
(a) Value Adjustment
(b) (c)=(b)–(a)
Cash $55,000 $55,000 —
Accounts receivable 135,000 135,000 —
Inventories 90,000 90,000 —
Land 180,000 300,000 $120,000 $120,000
Buildings (net) 430,000 450,000 20,000 20,000
Equipment 120,000 180,000 60,000 60,000
Accounts payable (140,000) (140,000) —
Long-term debt payable (420,000) (420,000) —
Deferred tax liability (50,000) (50,000) (50,000)Fair value adjustment allocated to net identifiable assets
($150,000)
Net asset carrying value $450,000
Fair value of assets acquired $600,000
Balance of FVA allocated to goodwill $250,000
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Chapter 3 – Business Combinations
Patricia Ltd.Consolidated SFPJanuary 1, 20X6
ASSETS
Cash (80,000 + 55,000) $135,000
Accounts receivable (220,000 + 135,000) 355,000
Inventories (100,000 + 90,000) 190,000
Total current assets 680,000
Land (800,000 + 180,000 + 120,000) 1,100,000
Buildings (net) (1,100,000 + 430,000 + 20,000) 1,550,000
Equipment (net) (720,000 + 120,000 + 60,000) 900,000
Investment in Shelly Inc. (850,000 + 0 - 850,000) —
Goodwill (+250,000) 250,000
TOTAL ASSETS $4,480,000
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable (120,000 + 140,000) $260,000
Long-term debt payable (400,000 + 420,000) 820,000
Deferred tax liability (+ 250,000) 50,000
Total liabilities 1,130,000
Common shares (1,000,000 + 850,000 + 200,000 - 200,000) 1,850,000
Retained earnings (1,500,000 + 250,000 - 250,000) 1,500,000
Total shareholders’ equity 3,350,000
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $4,480,000
Note: The bolded amounts are adjustments that must be made to • recognize fair value increments; • recognize goodwill; • eliminate Patricia’s investment account; • recognize the deferred tax liability arising from the acquisition; and • eliminate Shelley’s date-of-acquisition shareholders’ equity.
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