On June 30, 2014, Pewter Ltd. gave 28,000 shares to Sterling Co. in exchange for
ID: 2458948 • Letter: O
Question
On June 30, 2014, Pewter Ltd. gave 28,000 shares to Sterling Co. in exchange for 70% of Sterling’s outstanding shares. At the time of the exchange, Pewter’s shares had a fair value of $22.50 per share. The post-acquisition statements of financial position and Sterling’s fair values are shown below.
Statement of Financial Position
As of June 30, 2014
Sterling Co.______
Pewter Ltd. Book value Fair Value
Assets:
Current assets:
Cash $ 750,000 $ 37,500 $ 37,500
Accounts receivable 1,500,000 112,500 112,500
Inventory 150,000 37,500 37,500
2,400,000 187,500
Non-current assets:
Land 750,000 225,000 300,000
Equipment 2,250,000 375,000 412,500
Accumulated amortization (900,000) (112,500)
Investment in Sterling 630,000 __ -___
2,730,000 487,500
Total assets $ 5,130,000 $ 675,000
Liabilities and shareholders’ equity:
Current liabilities:
Accounts payable $ 750,000 $ 75,000 75,000
Loan payable 300,000 _____
1,050,000 75,000
Shareholders’ equity:
Common shares 2,580,000 150,000
Retained earnings 1,500,000 450,000
4,080,000 600,000
Total liabilities and shareholders’ equity $ 5,130,000 $ 675,000
Required: a) Calculate Pewter’s consolidated goodwill. b) Prepare Pewter’s consolidated statement of financial position at June 30, 2014 using the entity theory method of consolidation
Explanation / Answer
Consolidated Goodwill Fair value of consideration transferred 28000*22.50= 630000 Less: Fair value of Net assets on acquisition Cash 37500 Accounts Receivables 112500 Inventory 37500 Land 300000 Equipment 412500 Less: Accounts Payables -75000 Total 100% fair value 825000 Fair value of Net assets on acquisition for 80% 660000 Negative Goodwill on acquisition = -30000 Minority share of fair value= 825000-660000= 165000 Consolidated Balance sheet of Pewter Ltd. Assets: Current assets Total Cash 750000 37500 787500 Accounts Receivables 1500000 112500 1612500 Inventory 150000 37500 187500 2400000 187500 2587500 Non-current assets: Land 750000 300000 1050000 Equipment 2250000 412500 2662500 Acc. Amortisation -900000 -900000 2100000 712500 2812500 Total assets 4500000 900000 5400000 Liabilities and shareholders’ equity: Current liabilities: Accounts Payables 750000 75000 825000 Loan payable 300000 300000 1050000 75000 1125000 Shareholders’ equity: Common shares 2580000 2580000 Minority share of fair value 165000 165000 Retained Earnings 1500000 1500000 Gain on acquisition 30000 30000 4275000 4275000 TotalLiabilities and shareholders’ equity: 5325000 75000 5400000
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