Question 1
In 2011, Ace Co. Ltd exchanged machinery with Bee Co. Ltd. Following was related information:
Ace’s machinery
Bee’s machinery
Cost
$250,000
$510,000
Accumulated depreciation
100,000
250,000
Fair value
175,000
172,000
Cash received
3,000
Cash paid
3,000
Ace purchased equipment by signing a 5 year non-interest bearing note payable for $100,000. Market interest rate was 5%.
Ace received a $5,000 government grant to help purchase the equipment.
Required:
a. Assuming that the machinery exchange has commercial substance, prepare the required journal entries of the exchange for both Ace and Bee.
b. Assuming that the machinery exchange does not have commercial substance, prepare the required journal entries of the exchange for both Ace and Bee.
c. Prepare the required journal entry to record the purchase of the equipment by the non-interest bearing note.
d. Prepare the required journal entries to record the government grant using the 2 methods acceptable by MRS on the date when the grant is received.
Question
On May 31, 2011, Giant Company paid $7,000,000 to acquire all of the ordinary shares of Small Company to form a division of Giant. At the time of the acquisition, Small reported the following statement of financial position:
Non-current assets Current assets
Total assets
$5,400,000 Equity $5,000,000
1,800,000 Non-current liabilities 1,000,000
Current liabilities 1,200,000
$7,200,000 Total equity and liabilities $7,200,000
At acquisition, fair value of the identifiable net assets of Small was $5,600,000.
At December 31, 2011, Small reported the following statement of financial position information:
Current assets
Non-current assets (including goodwill) Current liabilities
Non-current liabilities
Net assets
$1,600,000
4,800,000 (1,400,000) (L000,000)
4 000 000
Recoverable amount of the Small division on the same day was determined to be $4,200,000.
Required:
a. Compute the amount of goodwill recognized, if any, on May 31, 2011.
b. Determine the impairment loss, if any, to be recorded on December 31, 2011.
c. Assuming that the recoverable amount of the Small division is $3,800,000, prepare the journal entry to record the impairment loss, if any, on December 31, 2011.
