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Exam 3: Appendix A: AIncome Tax Allocation

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Exam 1: Setting the Stage40 Questionsadd course
Exam 2: Intercorporate Equity Investments: an Introduction43 Questionsadd course
Exam 3: Business Combinations43 Questionsadd course
Exam 3: Appendix A: AIncome Tax Allocation6 Questionsadd course
Exam 4: Wholly Owned Subsidiaries: Reporting Subsequent Acquisitions40 Questionsadd course
Exam 4: Appendix A: Wholly Owned Subsidiaries: Reporting Subsequent Acquisitions4 Questionsadd course
Exam 4: Appendix B: Wholly Owned Subsidiaries: Reporting Subsequent Acquisitions6 Questionsadd course
Exam 5: Consolidation of Non-Wholly Owned Subsidiaries41 Questionsadd course
Exam 5: Appendix A: Step Purchases6 Questionsadd course
Exam 5: Appendix B: Decreases in Ownership Interest4 Questionsadd course
Exam 6: Subsequent-Year Consolidations: General Approach40 Questionsadd course
Exam 6: Appendix A: Preferred and Restricted Shares of Investee Corporation5 Questionsadd course
Exam 6: Appendix B: Intercompany Bond Holdings6 Questionsadd course
Exam 7: Segment and Interim Reporting41 Questionsadd course
Exam 8: Foreign Currency Transactions and Hedges49 Questionsadd course
Exam 9: Reporting Foreign Operations44 Questionsadd course
Exam 10: Financial Reporting for Not-For-Profit Organizations46 Questionsadd course
Exam 10: Appendix A: Fund Accounting5 Questionsadd course
Exam 11: Public Sector Financial Reporting44 Questionsadd course
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On September 1, 20X7, CanAir Limited decided to buy 100% of the shares outstanding of SkyAir Inc. for $1,215,000. CanAir will pay for this acquisition by cashing in all of its marketable securities and issuing share capital for the remaining amount. The balances showing on the statement of financial position for the two companies at August 31, 20X7, are as follows: On September 1, 20X7, CanAir Limited decided to buy 100% of the shares outstanding of SkyAir Inc. for $1,215,000. CanAir will pay for this acquisition by cashing in all of its marketable securities and issuing share capital for the remaining amount. The balances showing on the statement of financial position for the two companies at August 31, 20X7, are as follows: After a review of the financial assets and liabilities, CanAir determines that some of the assets of SkyAir have fair values different from their carrying values. These items are listed below: Property, plant, and equipment: Fair value is $1,350,000 Internet domain name: Fair value is $55,000 Customer lists: Fair value is $35,000 In addition, SkyAir has tax losses available for carryforward that have a fair value of $225,000 and it is probable that they will be realized in the future. Required: Determine the amount of goodwill that will be recorded on the business combination. Prepare the consolidated statement of financial position as at September 1, 20X7. After a review of the financial assets and liabilities, CanAir determines that some of the assets of SkyAir have fair values different from their carrying values. These items are listed below: Property, plant, and equipment: Fair value is $1,350,000 Internet domain name: Fair value is $55,000 Customer lists: Fair value is $35,000 In addition, SkyAir has tax losses available for carryforward that have a fair value of $225,000 and it is probable that they will be realized in the future. Required: Determine the amount of goodwill that will be recorded on the business combination. Prepare the consolidated statement of financial position as at September 1, 20X7.

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Calculation of goodwill:
 Fair value of consideration paid $1,215,000\begin{array}{ll} \text { Fair value of consideration paid } &\$ 1,215,000\\\end{array}
Consideration received:
Fair value of net assets acquired:
 Cash $80,000 Accounts receivable 35,000 Inventories 20,000 Marketable securities 45,000 Capital assets 1,350,000 Internet domain name 55,000 Custcaner lists 35,000 Deferred tax assets 225,000 Current liabilities (280,000) Long-tem liabilities (620,000)‾945,000‾ Coodwill $270,000‾\begin{array}{lll}\text { Cash } & \$ 80,000 \\\text { Accounts receivable } & 35,000 \\\text { Inventories } & 20,000 \\\text { Marketable securities } & 45,000 \\\text { Capital assets } & 1,350,000 \\\text { Internet domain name } & 55,000 \\\text { Custcaner lists } & 35,000 \\\text { Deferred tax assets } & 225,000 \\\text { Current liabilities } & ( 280,000 ) \\\text { Long-tem liabilities } & \underline{( 620,000 )}& \underline{945,000}\\\text { Coodwill }&& \underline{\$270,000}\end{array} Can Air Limited
Consolidated Statement of Financial Position
September 1, 20X 7
Calculation of goodwill: \begin{array}{ll} \text { Fair value of consideration paid } &\$ 1,215,000\\ \end{array} Consideration received: Fair value of net assets acquired: \begin{array}{lll} \text { Cash } & \$ 80,000 \\ \text { Accounts receivable } & 35,000 \\ \text { Inventories } & 20,000 \\ \text { Marketable securities } & 45,000 \\ \text { Capital assets } & 1,350,000 \\ \text { Internet domain name } & 55,000 \\ \text { Custcaner lists } & 35,000 \\ \text { Deferred tax assets } & 225,000 \\ \text { Current liabilities } & ( 280,000 ) \\ \text { Long-tem liabilities } & \underline{( 620,000 )}& \underline{945,000}\\ \text { Coodwill }&& \underline{\$270,000} \end{array} Can Air Limited Consolidated Statement of Financial Position September 1, 20X 7 *Note: The purchase price of $1,215,000 is paid with cash from the marketable securities of $480,000 and an issue of shares totalling $735,000. *Note: The purchase price of $1,215,000 is paid with cash from the marketable securities of $480,000 and an issue of shares totalling $735,000.

Foster Ltd. acquired 100% of Benson Ltd. The carrying values of Benson's capital assets differed from their fair values and their fair values differed from their tax bases. Which of the following statements is true?

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B

Castle Ltd. acquired 100% of Bello Ltd. At the time of acquisition, Bello had assets with a tax value of $700,000, carrying value of $800,000, and fair value of $950,000. Both Castle and Bello are subject to a tax rate of 40%. What is the amount of the deferred tax liability on Castle's consolidated SFP?

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C

Castle Ltd. acquired 100% of Bello Ltd. At the time of acquisition, Bello had assets with a tax value of $700,000, carrying value of $800,000, and fair value of $950,000. Both Castle and Bello are subject to a tax rate of 40%. What is the effect of recognizing the deferred tax in accounting for the acquisition?

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Question 4

O'Ball Ltd. wants to acquire Kiro Ltd. to take advantage of its tax losses and credit carryforwards. In what way can O'Ball accomplish this?

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Question 5

On January 1, 20X7, Falcon acquired 100% of the outstanding shares of Intra for $3,600,000. Both are mining companies involved in nickel and copper production. The balance sheet for Intra at the date of acquisition is shown below, together with estimates of the fair values and tax values of Intra's recorded assets and liabilities. Intra Corp Statement of Financial Position December 31, 20X 6 On January 1, 20X7, Falcon acquired 100% of the outstanding shares of Intra for $3,600,000. Both are mining companies involved in nickel and copper production. The balance sheet for Intra at the date of acquisition is shown below, together with estimates of the fair values and tax values of Intra's recorded assets and liabilities. Intra Corp Statement of Financial Position December 31, 20X 6 The tax rate for Intra and for Falcon is 30%. Required: What is the amount of goodwill to be recorded for this business combination? The tax rate for Intra and for Falcon is 30%. Required: What is the amount of goodwill to be recorded for this business combination?

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Question 6
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