Forest Ltd Purchased All the Issued Capital of Shrub Ltd

Multiple Choice

Forest Ltd purchased all the issued capital of Shrub Ltd on 1 July 2013 for cash consideration of $1 million.The fair value of Shrub Ltd's net assets at that date was $1 million made up of: $$\begin{array} { | l | r | } \hline \text { Share capital } & \$ 750000 \\\hline \text { Retained earnings } & 250000 \\\hline \text { Total equity } & \$ 1000000 \\\hline\end{array}$$ During the period ended 30 June 2014,Shrub Ltd declare a dividend of $100 000 out of pre-acquisition earnings.What consolidation journal entries would be required to prepare group accounts for the period?

A) $\begin{array}{|l|l|r|r|}\hline \mathrm{Dr} & \text { Dividend receivable } & 100000 & \\\hline \mathrm{Cr} & \text { Dividend declared } & & 100000 \\\hline & & & \\\hline \mathrm{Dr} & \text { Share capital } & 750000 & \\\hline \mathrm{Dr} & \text { Retained earnings } & 250000 & \\\hline \mathrm{Cr} & \text { Investment in Shrub Ltd } & & 1000000 \\\hline\end{array}$
B) $$\begin{array} { | c | l | r | r | } \hline \text { Dr } & \text { Share capital } & 750000 & \\\hline \mathrm { Dr } & \text { Retained earnings } & 250000 & \\\hline \mathrm { Cr } & \text { Investment in Shrub Ltd } & & 1000000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Dividend payable } & 100000 & \\\hline \mathrm { Cr } & \text { Dividend receivable } & & 100000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Dividend income } & 100000 & \\\hline \mathrm { Cr } & \text { Dividend declared } & & 100000 \\\hline\end{array}$$
C) $$\begin{array} { | c | l | r | r | } \hline \text { Dr } & \text { Share capital } & 750000 & \\\hline \mathrm { Dr } & \text { Retained earnings } & 250000 & \\\hline \mathrm { Cr } & \text { Investment in Shrub Ltd } & & 1000000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Dividend payable } & 100000 & \\\hline \mathrm { Cr } & \text { Retained earnings } & & 100000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Dividend receivable } & 100000 & \\\hline \mathrm { Cr } & \text { Dividend income } & & 100000 \\\hline\end{array}$$
D) $$\begin{array} { | c | l | r | r | } \hline \text { Dr } & \text { Dividend income } & 100000 & \\\hline \mathrm { Cr } & \text { Retained earnings } & & 100000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Dividend receivable } & 100000 & \\\hline \mathrm { Cr } & \text { Dividend payable } & & 100000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Share capital } & 750000 & \\\hline \mathrm { Dr } & \text { Retained earnings } & 250000 & \\\hline \mathrm { Cr } & \text { Investment in Shrub Ltd } & & 1000000 \\\hline\end{array}$$