Reference no: EM132618104
Thunder'n Lightnin' Limited acquired all the shares in Snowblind Limited for a 450,000 cash consideration on 1 July 2021. All of the identifiable net assets were recorded at their fair value in the books of Snowblind Limited, except for a contingent provision for loan guarantee which was, at acquisition date, not recorded in Snowblind Limited's financial statements. The contingent provision for loan guarantee had a fair value of $14,000. The tax rate is 30%.
Problem 1: The business combination valuation entry at 1 July 2021 for the provision of loan guarantee is:
Select one:
Option a.
Dr BCVR $ 9,100
Dr Deferred tax asset $ 4,900
Cr Provision for loan guarantee $ 14,000
Option b.
Dr Provision for Loan Guarantee $ 14,000
Cr Deferred tax liability $ 4,200
Cr BCVR $ 9,800
Option c.
Dr Provision for Loan Guarantee $ 9,800
Dr Deferred tax Asset $ 4,200
Cr BCVR $ 14,000
Option d.
Dr BCVR $ 9,100
Dr Income Tax Expense $ 4,900
Cr Provision for loan guarantee $ 14,000
Option e. None of the other options.