the july 31 year 3 balance sheets of two companies that are parties to a business co 737230
The July 31, Year 3, balance sheets of two companies that are parties to a business combination are as follows:
|
|
Ravinder Corp. |
Robin Inc. |
|
|
|
Carrying amount |
Carrying amount |
Fair value |
|
Current assets |
$1,600,000 |
$ 420,000 |
$468,000 |
|
Plant and equipment |
1,330,000 |
1,340,000 |
972,000 |
|
Accumulated depreciation |
(250,000) |
(500,000) |
|
|
Patents—net |
— |
— |
72,000 |
|
|
$2,680,000 |
$1,260,000 |
|
|
Current liabilities |
$1,360,000 |
$ 252,000 |
252,000 |
|
Long term debt |
480,000 |
360,000 |
384,000 |
|
Common shares |
720,000 |
168,000 |
|
|
Retained earnings |
120,000 |
480,000 |
|
|
|
$2,680,000 |
$1,260,000 |
|
In addition to the assets identified above, Ravinder Corp. attributed a value of $100,000 to a major research project that Robin Inc. was working on. Robin Inc. feels that it is within a year of developing a prototype for a state of the art biomedical device. If this device can ever be patented, it could be worth hundreds of thousands of dollars.
Effective on August 1, Year 3, the shareholders of Robin Inc. accepted an offer from Ravinder Corp. to purchase 80% of their common shares for $1,040,000 in cash. Ravinder Corp.’s legal fees for investigating and drawing up the share purchase agreement amounted to $25,000.
Required:
(a) Prepare the journal entries in the records of Ravinder Corp. to record the share acquisition and cost of legal fees.
(b) Prepare a schedule to calculate and allocate the acquisition differential. Explain the rationale for the accounting treatment of the $100,000 attributed to the research project.
(c) Prepare Ravinder Corp.’s consolidated balance sheet as at August 1, Year 3. Assume there were no transactions on this date other than the transactions described above.