Colour Ltd. enters into a business combination with Pink Inc. on January 1, Year 1. To complete the business combination, Colour Ltd. issued 65,000 of its common shares which is currently trading at $9.00 per share. Colour is considered to be the clear acquirer. Costs associated with the business combination are: Acquisition cost of $6,500; and Costs of issuing shares of $8,000 Statement of financial position for the two companies immediately before the business combination are below: Colour Ltd. Pink Inc. Book Value Fair Value Book Value Fair Value Cash 165,500 165,500 63,050 63,050 Accounts Receivable 156,800 155,000 98,550 80,500 Inventory 388,770 402,500 123,450 134,000 Equipment (net) 458,550 408,900 60,800 65,500 Buildings (net) 335,000 446,500 249,580 309,450 Land 412,500 585,000 - Total 1,917,120 595,430 Current liabilities 185,560 185,560 41,160 41,160 Long-term debt 580,660 590,000 150,000 155,000 Common shares 250,000 100,000 Retained earnings 900,900 304,270 Total 1,917,120 595,430 Required 1 Assuming that Colour acquired the net asset of Pink Inc., Calculate any goodwill created at the time of the business combination. (3 marks) Prepare the journal entries on Colour's books to record the business combination. (8 marks) Prepare Colour's statement of financial position immediately after the business combination. Use an appropriate three-line title. (4 marks) Required 2 Assuming that Colour acquired the 100% shares of Pink Inc., prepare the journal entries on Colour's books to record the business combination. (5 marks) Required 3 Assuming that Colour acquired the 100% shares of Pink Inc. and report its financial statement using ASPE, what method(s) is (are) allowed to account the investment in subsidiary (4 marks)

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter8: Investing Activities

Section: Chapter Questions

Problem 22PC

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Colour Ltd. enters into a business combination with Pink Inc. on January 1, Year 1. To complete the business combination, Colour Ltd. issued 65,000 of its common shares which is currently trading at $9.00 per share. Colour is considered to be the clear acquirer. Costs associated with the business combination are: Acquisition cost of $6,500; and Costs of issuing shares of $8,000 Statement of financial position for the two companies immediately before the business combination are below: Colour Ltd. Pink Inc. Book Value Fair Value Book Value Fair Value Cash 165,500 165,500 63,050 63,050 Accounts Receivable 156,800 155,000 98,550 80,500 Inventory 388,770 402,500 123,450 134,000 Equipment (net) 458,550 408,900 60,800 65,500 Buildings (net) 335,000 446,500 249,580 309,450 Land 412,500 585,000 - Total 1,917,120 595,430 Current liabilities 185,560 185,560 41,160 41,160 Long-term debt 580,660 590,000 150,000 155,000 Common shares 250,000 100,000 Retained earnings 900,900 304,270 Total 1,917,120 595,430 Required 1 Assuming that Colour acquired the net asset of Pink Inc., Calculate any goodwill created at the time of the business combination. (3 marks) Prepare the journal entries on Colour's books to record the business combination. (8 marks) Prepare Colour's statement of financial position immediately after the business combination. Use an appropriate three-line title. (4 marks) Required 2 Assuming that Colour acquired the 100% shares of Pink Inc., prepare the journal entries on Colour's books to record the business combination. (5 marks) Required 3 Assuming that Colour acquired the 100% shares of Pink Inc. and report its financial statement using ASPE, what method(s) is (are) allowed to account the investment in subsidiary (4 marks)

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