Taylor Ltd, a supplier of music records and equipment, agreed to acquire the business of a rival company, Speedy Ltd, taking over all assets and liabilities as at 1 June 2020.   The price agreed on was $175,000, payable $150,000 in cash and the balance by the issue to the selling company of 25,000fully paid shares in Taylor Ltd, these shares having a fair value of $1.00 per share.   The trial balances of the two companies as at 1 June 2020 were as follows.     Taylor Speedy   Dr Cr Dr Cr Share capital      1,200,000         300,000  Retained earnings         420,000       184,000    Accounts payable           97,000         325,000  Cash         275,000        Equipment (net)          468,000         230,000    Inventory         415,000         122,000    Accounts receivable          309,000          68,000    Borrowings          250,000        Goodwill            21,000            1,717,000     1,717,000       625,000       625,000      All the identifiable net assets of Speedy Ltd were recorded by Speedy Ltd at fair value except for the inventories, which were considered to be worth $122,000 (assume no tax effect). The plant had an expected remaining life of 6 years.   The business combination was completed and Speedy Ltd went into liquidation. Taylor Ltd incurred incidental costs of $1,000 in relation to the acquisition. Costs of issuing shares in Taylor Ltd were $2,000.   Required a. Prepare the acquisition analysis for Taylor Limited ? b. Prepare the journal entries in the records of Taylor Ltd to record the business combination?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Taylor Ltd, a supplier of music records and equipment, agreed to acquire the business of a rival company, Speedy Ltd, taking over all assets and liabilities as at 1 June 2020.

 

The price agreed on was $175,000, payable $150,000 in cash and the balance by the issue to the selling company of 25,000fully paid shares in Taylor Ltd, these shares having a fair value of $1.00 per share.

 

The trial balances of the two companies as at 1 June 2020 were as follows.

 

 

Taylor

Speedy

 

Dr

Cr

Dr

Cr

Share capital

 

   1,200,000 

 

     300,000 

Retained earnings

 

      420,000 

     184,000 

 

Accounts payable

 

        97,000 

 

     325,000 

Cash

        275,000 

 

 

 

Equipment (net)

         468,000 

 

     230,000 

 

Inventory

        415,000 

 

     122,000 

 

Accounts receivable

         309,000 

 

      68,000 

 

Borrowings

         250,000 

 

 

 

Goodwill

 

 

       21,000 

 

 

      1,717,000 

   1,717,000 

     625,000 

     625,000 

 

 

All the identifiable net assets of Speedy Ltd were recorded by Speedy Ltd at fair value except for the inventories, which were considered to be worth $122,000 (assume no tax effect). The plant had an expected remaining life of 6 years.

 

The business combination was completed and Speedy Ltd went into liquidation. Taylor Ltd incurred incidental costs of $1,000 in relation to the acquisition. Costs of issuing shares in Taylor Ltd were $2,000.

 

Required

a. Prepare the acquisition analysis for Taylor Limited ?
b. Prepare the journal entries in the records of Taylor Ltd to record the business combination?
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