Taylor Ltd, a supplier of music records and equipment, agreed to acquire the business of a rival company, Speedy Ltd, taking over all assets and liabilities as at 1 June 2020.
The price agreed on was $175,000, payable $150,000 in cash and the balance by the issue to the selling company of 25,000 fully paid shares in Taylor Ltd, these shares having a fair value of $1.00 per share.
The trial balances of the two companies as at 1 June 2020 were as follows.
| Taylor | Speedy | |||
| Dr | Cr | Dr | Cr | |
| Share capital | 1,200,000 | 300,000 | ||
| Retained earnings | 420,000 | 184,000 | ||
| Accounts payable | 97,000 | 325,000 | ||
| Cash | 275,000 | |||
| Equipment (net) | 468,000 | 230,000 | ||
| Inventory | 415,000 | 122,000 | ||
| Accounts receivable | 309,000 | 68,000 | ||
| Borrowings | 250,000 | |||
| Goodwill | 21,000 | |||
| 1,717,000 | 1,717,000 | 625,000 | 625,000 | |
All the identifiable net assets of Speedy Ltd were recorded by Taylor Ltd at fair value except for the inventories, which were considered to be worth $122,000 (assume no tax effect). The plant had an expected remaining life of 6 years.
The business combination was completed and Speedy Ltd went into liquidation. Taylor Ltd incurred incidental costs of $1,000 in relation to the acquisition. Costs of issuing shares in Taylor Ltd were $2,000.
Required
- Prepare the acquisition analysis for Taylor Limited
- Prepare the journal entries in the records of Taylor Ltd to record the business combination.
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