ADVANCED ACCOUNTING
14th Edition
ISBN: 9781307664089
Author: Hoyle
Publisher: MCG/CREATE
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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.
Jackson Inc. purchased 30,000 shares of common stock of the Pixel Corporation for
$10 per share on January 2, 2020. During 2020, Pixel had 100,000 shares of
common stock outstanding, reported net income of $200,000, and paid cash
dividends of $100,000. The fair value of Pixel stock on December 31, 2020 is $12
per share.
On December 31, 2020, what will Jackson report on its Balance Sheet for its
investment in Pixel?
How much revenue should Jackson report for 2020 on its investment in Pixel?
Round your answers to the nearest whole number. Dot not use dollar signs($) or
commas(,).
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