Advanced Accounting
14th Edition
ISBN: 9781260247824
Author: Joe Ben Hoyle, Thomas F. Schaefer, Timothy S. Doupnik
Publisher: RENT MCG
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Niagara Company is contemplating to acquire Toronto, Inc. on January 1, 2020. The information
on Toronto's profit and net assets for the last five years is as follows:
Net Assets
P20,200,000
Profit
2019
P 4,000,000
2018
3,200,000
3,000,000
3,800,000
20,000,000
2017
18,500,000
2016
17,900,000
2015
2,500,000
15,600,000
It is agreed that Niagara is willing to pay for goodwill measured by capitalizing at 40% excess of
the average profits over normal return on net assets. The normal return on average net assets for
the industry to which Toronto belongs is 10%.
How much should Niagara Company pay to Toronto, Inc. in the acquisition of the latter's net
assets?
On 1 January 2019 Apples Ltd acquired all the assets and liabilities of Berries Ltd. Details of the consideration transferred are as follows:
Cash of $200,000, half to be paid on 1 January 2019, with the balance due on 1 January 2020. The incremental borrowing rate for Apples Ltd is 10%.
100,000 shares in Apples Ltd were issued. The share price on 1 January 2019 was $5.00 per share. This price represented a six-month high. Costs of issuing the shares was $1,000.
Supply of a motor vehicle to Berries Ltd. The fair value of the motor vehicle is $60,000. The motor vehicle had an original cost of $90,000, and had accumulated depreciation of $40,000 as at 1 January 2019 in Apples Ltd accounting records.
Legal fees and associated with the acquisition totalled $5,000.
Required: Calculate the consideration transferred.
Jack, chief finance officer for sitcom products,
convinced the president of the company to enter
in to a 90days, forward contract to sell 500,000
kronas as a speculative venture. When the
forward contract was acquired on November 1,
2019, the spot rate for the krona was OMR .8041
and the 90days future rate was OMR .8321. At
December 31 2019, the end of the firm's fiscal
year, the spot rate was $.9483 and the future rate
for kronas to be sold on January 30, 2020, was
$.9948. On January 30, 2020, the spot rate was
$.9830.
Required: Prepare all necessary journal entries
in regard to the forward contract.
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