Prepare the acquisition analysis at january

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Reference no: EM133379598

On January 1, 2019 Paw Inc, a public company, acquired 90% of the shares of Patrol Corp. for $90,000. The equity of Patrol as at that date was:

Share capital- 20,000 shares $20,000

Retained earnings $50,000

Paw had previously acquired 10% of the shares of Patrol for $10,000. The fair value of this investment as at January 1, 2019 was $19,000.

At the day of acquisition all of the identifiable assets of Patrol were recorded at fair value except for a plant and inventory, whose carrying amounts were $15,000 and $5,000 respectively less than their fair value. All the liabilities were recorded at fair value except the long term debt which had a fair value of $ 88,000, when the carrying value was $100,000. The amortization on the difference in the value is $520 in 2019, $541 in 2020, and $560 in 2021. All of the inventory was subsequently sold during 2019 and the plant had a remaining useful life at the acquisition date of 5 years. The tax rate is 40%.

Patrol had been actively researching a new process, which is part of the reason why Paw acquired the remaining outstanding shares of Patrol. Paw estimated the value of this intangible to be $30,000 and that it would have an indefinite useful life. In 2021 the intangible was impaired to $25,000.

During 2021 Paw had net income of $30,000 and paid dividends of $10,000. During 2021 Patrol had income of $35,000 and paid dividends of $22,000. Patrol paid Paw $25,000 in management fees in 2021.

In 2020 Patrol sold $20,000 of inventory to Paw at a profit of $8,000. One quarter of this inventory was still on Paw's books at year-end 2020. In 2021, Paw sold $60,000 of merchandise to Patrol at a gross profit of 20%. At December 31, 2021, one half of this merchandise was in the subsidiary's inventory.

On January 1, 2019, Paw sold a machine with a NBV of $35,000 to Patrol for $65,000. At that date the machine had a remaining useful life of 4 years.

Required:

1. Prepare the acquisition analysis at January 1, 2019.

2. Prepare the fair value adjustment table for the year ended December 31, 2021.

Reference no: EM133379598

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