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Question 5 (8 marks) On 1 July 2020, Big Ltd acquired all the issued share...

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Accounting

Question 5 (8 marks)

On 1 July 2020, Big Ltd acquired all the issued share capital of Small Ltd for cash for an amount of $1,050,000. On the date of the acquisition, the statements of the financial position of both entities are as follows:

Big Ltd ($)

Small Ltd ($)

Assets

Cash

21,000

10,500

Accounts receivable

315,000

115,500

Land

420,000

210,000

Plant

1,680,000

1,050,000

Investment in Small Ltd

1,050,000

3,486,000

1,386,000

Liabilities

Accounts payable

126,000

63,000

Loans payable

840,000

315,000

Shareholders equity

Share capital

2,100,000

420,000

Retained earnings

420,000

588,000

3,486,000

1,386,000

Required:

1. Calculate the goodwill on acquisition assuming all net assets of small Ltd are recorded in fair value.

2. Prepare consolidation journal entries.

3. What journal entry would the parent company Big Ltd record in its own accounting record for the acquisition of Small Ltd at the acquisition date?

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