On 1 July 2018 Jenny Ltd acquired all the shares of Patricia Ltd for $470,000.The equity of Patricia Ltd at 1 July 2018 was:
Share capital $270,000
Retained Earnings 110,000
General reserve 10,000
At 1 July 2018 all the identifiable assets and liabilities were stated at fair value except for the following :
Carrying value Fair value
Inventory 80,000 90,000
Machinery ( cost $150,000) 100,000 140,000
Both companies pay tax at 30%.The following intercompany transactions occurred from acquisition date up to the 30 June 2019
(a) At the end of the reporting period Patricia Ltd owes Jenny Ltd $18,500 for services provided on credit.
(b) Jenny Ltd rented an office during the year from Patricia for $55,000.
(c) Patricia Ltd issued $60,000 8% debentures to Jenny on 1July2018 paying $2,400 interest to Jenny on 1 January 2019 and accruing interest on the debentures at 30 June 2019
(d)During the year Jenny Ltd sold inventory costing $60,000 for $70,000 to Patricia Ltd. At balance date Patricia Ltd had one quarter of this inventory still on hand.
(e) Jenny Ltd sold a piece of Machinery costing $80,000 for $64,000 on 1 July 2018 to Patricia Ltd. At this date the machine had a carrying amount of $60,000 in the books of Jenny and was being depreciated on a straight line basis for the remainder of its useful life which was 4 years at the date of sale .The useful life is unchanged on sale.
(f) Patricia Ltd paid an interim dividend of $16,000 to Jenny Ltd in March 2019 and has proposed a final dividend of $22,000 payable to Jenny Ltd at the end of the period 30 June, 2019.
Required: Showing each part separately
(a) Prepare all journal entries necessary upon acquisition by Jenny Ltd at 1 July 2018.
(b) Prepare all intercompany adjusting journal entries for the above intercompany transactions for the year ended 30 June 2019.
The Warner company recorded an accounting profit before tax of $525,000 for the year ended 30 June 2019 .Included in the calculation of accounting profit were the following items of revenue and expense:
Goodwill amortised(not deductible) $11,000
Entertainment expenses(not deductible) 8,000
Rent revenue 44,000
Depreciation expense (equipment) 30,000
Depreciation expense(motor vehicle) 40,000
Insurance expense 36,000
Long service leave expense 45,000
Provision for doubtful debts increased by 20,000
Royalty revenue (not assessable for tax) 35,000
For tax purposes the following information is supplied:
Rent received $38,000
Depreciation on equipment is allowed at10% on $400,000
Depreciation on motor vehicles is allowed at 25% on $150,000
Long service leave paid 16,000
Bad debts written off 6,500
The Prepaid Insurance account had an opening balance of $7,000 and a closing balance of $3,000 .
The tax rate is 30%
(a) Prepare a Current tax worksheet for the above
(b)Prepare the journal entry to recognise current tax for the year ended 30 June 2019
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