Reference no: EM132618076

Happy Ltd purchased 100% of the shares in Day Ltd on 1 July 2020, for a cash consideration of $1,000,000. On that date, the equity balances of Day Ltd were:

Share Capital $500,000

Retained Earnings $300,000

Asset Revaluation Reserve $100,000

All of the identifiable net assets were recorded at their fair value in the books of Day Ltd, except for:

Provision for legal claims (contingent liability) - Estimated claim recorded in the note $10,000; Fair value $20,000

Day Ltd's assets also included Goodwill of $10,000.

Problem 1: The Company Tax rate is 30%. The line item for goodwill in the consolidation worksheet will include the following entry in the adjustment column:

Select one:

Option a. Dr Goodwill of $93,000

Option b. Cr Goodwill of $10,000

Option c. Dr Goodwill of $114,000

Option d. Dr Goodwill of $124,000

Option e. None of the other options are correct.