On 1 July 2010 Davis Ltd acquired all the share capital in Mitchell Ltd for $230,000 cash. At the date of acquisition Mitchell Ltd had a dividend payable of $40,000. The shares in Mitchell Ltd were acquired cum- dividend. As at the date of acquisition the balance sheet of Mitchell Ltd showed the following: Share capital 100,000 General reserve 35,000 Retained earnings 45,000 All of the identifiable assets and liabilities of Mitchell Ltd were recorded at fair value except for the following: Carrying amount Fair value $20,000 $45,000 Inventory 40,000 100,000 Machinery (Cost $150,000) Nil 5,000 Contingent liability The inventory was all sold by 30 June 2011. The machinery has a further 10 year useful life. The contingent liability was settled for $4,000 during the 2011 financial year. All fair value adjustments are performed on consolidation. The tax rate is 30%. On 30 June 2012, the consolidation entry required to the revalued inventory is:

On 1 July 2010 Davis Ltd acquired all the share capital in Mitchell Ltd for $230,000 cash. At the date of acquisition Mitchell Ltd had a dividend payable of $40,000. The shares in Mitchell Ltd were acquired cum- dividend. As at the date of acquisition the balance sheet of Mitchell Ltd showed the following: Share capital 100,000 General reserve 35,000 Retained earnings 45,000 All of the identifiable assets and liabilities of Mitchell Ltd were recorded at fair value except for the following: Carrying amount Fair value $20,000 $45,000 Inventory 40,000 100,000 Machinery (Cost $150,000) Nil 5,000 Contingent liability The inventory was all sold by 30 June 2011. The machinery has a further 10 year useful life. The contingent liability was settled for $4,000 during the 2011 financial year. All fair value adjustments are performed on consolidation. The tax rate is 30%. On 30 June 2012, the consolidation entry required to the revalued inventory is:

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter14: Intercorporate Investments In Common Stock

Section: Chapter Questions

Problem 16E

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