Journal Entries for Transactions, Deferred Tax Review, Acquisition Analysis, & Intra Group Transacti

Issuing Shares and Refunds

1.On 1 July 2020, PK Ltd issued a prospectus inviting applications for 300 000 ordinary shares, at an issue price of $7, payable $2.50 on application, $1.50 on allotment, and $3 on future call(s), dates to be determined by the directors. By 1 September, applications were received for 310 000 shares with $2.50 paid per share. On 6 September, the directors allotted 300 000 shares. Refunds were made to applicants for 10 000 shares. Share issue costs of $2 400 were also paid on the same date. All of the allotment money was received by 1 October. On 1 February 2021, a first and final call for $3 was made. All of the call money was received by 1 March 2021. 

Required

Prepare journal entries to record the above transactions

2.Pine Ltd is reviewing its deferred tax for the year. In each of the following situations prepare the end-of-period adjustment journal entries to account for income tax on the initial appearance or reversal of any temporary differences. Explain in each case why particular accounts are affected.

1. The company purchased a depreciable asset at the beginning of the year for $200 000. For accounting purposes, an annual depreciation rate of 20% straight-line is used, whereas for taxation the rate is 30% straight-line.

2. The company’s provision for long-service leave at the beginning and end of the year are $80 000 and $77 500 respectively. In the current year, $10 000 in long-service leave was paid to a long-standing employee.

3. The company has interest receivable of $25 000 at the end of the year. No interest was receivable at the beginning of the year. Interest income is included in taxable profit only when received.

4. The company has revalued land at the end of the year. The land was revalued during the year from its original cost of $150 000 to a fair value of $250 000.

4.Trump Ltd acquired all the assets and liabilities of Bush Ltd on 30 June 2020.

The purchase consideration was as follows:

$1,000,000 in cash paid on acquisition date

Two shares in Trump Ltd for every one share in Bush Ltd. Bush Ltd has 2,000,000 shares on issue at 30 June 2020. At 30 June 2013 Trump Ltd shares were quoted on the ASX at $2.50 per share.

A deferred payment of $500,000 to be paid on 30 June 2014.Trump Ltd’s cost of capital is 7% which represents a one period present value factor of 0.9346

Should the price of Trump Ltd shares fall below $2.50 in the six months following the acquisition Trump Ltd is required to pay a cash contingent consideration. It is estimated that there is a 60% probability that the share price will fall to $2.45 in this period.

Other information

Trump Ltd incurred  legal and other costs associated with the acquisition of $10,000

Trump Ltd incurred share issue costs of $4,000

The assets and liabilities acquired from Bush Ltd are as follows:

In addition Bush Ltd has contingent liabilities of $40,000 at the acquisition date.

Required:

Prepare an acquisition analysis for Trump Ltd’s acquisition of the net assets of Bush Ltd

Prepare the journal entries to record the acquisition in the books of Trump Ltd

Prepare the journal entry in the books of Trump Ltd if Trump Ltd had purchased all the issued shares of Bush Ltd  by issuing 5,000,000 shares in Trump Ltd at an issue price of $2.50 per share.

5.On 1 July 2020 S Ltd acquired 60% of the issued shares of P Ltd. During the year ended 30 June 2021 the following intra group transactions occurred

Sales of inventory:  P  Ltd to S Ltd $200,000 (Cost to P Ltd $150,000)

Intragroup inventory on hand 30 June 2021: S Ltd held 40% of the inventory acquired from P Ltd

Intragroup sale of equipment An item of equipment originally acquired by S Ltd on 1 July 2018 at a cost of $200,000 was sold to P Ltd on 1 July 2020 for $170,000. S Ltd had depreciated this asset at 10% per annum on a straight line basis with no scrap value. Subsequent to the sale the expected useful life of the asset is a further 4 years.

During the year ended 30 June 2021 the following dividends were paid:

S Ltd       $10,000

P Ltd       $2,000

On 31 December 2020 S Ltd lent P Ltd $100,000. Interest on this loan at 6%  was paid up to  30 June 2021.

During the year ended 30 June 2021 P Ltd paid S Ltd $4,000 for management services.

Required.

Prepare the consolidation journal entries required to eliminate the above intragroup transactions for the year ended 30 June 2021. Assume a tax rate of 30%