Question 1:
Book value of the equipment: $900,000 ((900,000 + (1,000 * 0))
Fair value of the contributed equipment: $2,100,000
Ownership Interest: 50%
Date Account title Debit Credit
January 1, Year 8 Investment in Okanagan Inc. 2,100,000
Book value of equipment 900,000
Gain on Contribution of Equipment 600,000
Deferred gain on contribution of equipment 600,000
To record initial investment in Jager Ltd.
December 31, Year 8 Investment in Okanagan Inc. 306,000
Income from Okanagan Inc. 306,000
To record 50% of net income of Okanagan Inc. (612,000 x
50%).
December 31, Year 8 Income from Okanagan Inc. 30,000
Investment in Okanagan Inc. 30,000
To recognize a portion of the gain on transfer of equipment to
the joint venture (600,000/20 years).
, Question 2:
Building Cost: 290,000 ((240,000 +(40*1,000))
Building net book value: 290,000 – 50,000 = 240,000
Building tax base: 200,000
Existing deferred tax liability:
Carrying amount: 240,000, Tax base: 200,000
Taxable temporary difference: 240,000 – 200,000 = 40,000
Existing DTL: 40,000 * 40% = 16,000
Fair value at Tax Basis Temporary Tax Rate Deferred Tax
Acquisition Difference liability
Inventory $80,000 $80,000 $0 40% $0
Accounts Receivable 100,000 100,000 0 40% 0
Land 200,000 140,000 60,000 40% 24,000
Building 350,000 200,000 150,000 40% 60,000
Accounts Payable 70,000 70,000 0 40% 0
Total new deferred tax $210,000 $84,000
liability
Total Assets: 80,000+100,000+140,000+240,000 = 560,000
Total Liabilities: 70,000 + 16,000 = 86,000
Net Assets = 560,000 – 86,000 = 474,000
Purchase price $1,200,000
Book Value of net identifiable assets 474,000
Acquisition Differential $726,000
Allocation:
Land 60,000
Building 110,000
Deferred Tax liability (68,000) 102,000
Goodwill $624,000
Book value of the equipment: $900,000 ((900,000 + (1,000 * 0))
Fair value of the contributed equipment: $2,100,000
Ownership Interest: 50%
Date Account title Debit Credit
January 1, Year 8 Investment in Okanagan Inc. 2,100,000
Book value of equipment 900,000
Gain on Contribution of Equipment 600,000
Deferred gain on contribution of equipment 600,000
To record initial investment in Jager Ltd.
December 31, Year 8 Investment in Okanagan Inc. 306,000
Income from Okanagan Inc. 306,000
To record 50% of net income of Okanagan Inc. (612,000 x
50%).
December 31, Year 8 Income from Okanagan Inc. 30,000
Investment in Okanagan Inc. 30,000
To recognize a portion of the gain on transfer of equipment to
the joint venture (600,000/20 years).
, Question 2:
Building Cost: 290,000 ((240,000 +(40*1,000))
Building net book value: 290,000 – 50,000 = 240,000
Building tax base: 200,000
Existing deferred tax liability:
Carrying amount: 240,000, Tax base: 200,000
Taxable temporary difference: 240,000 – 200,000 = 40,000
Existing DTL: 40,000 * 40% = 16,000
Fair value at Tax Basis Temporary Tax Rate Deferred Tax
Acquisition Difference liability
Inventory $80,000 $80,000 $0 40% $0
Accounts Receivable 100,000 100,000 0 40% 0
Land 200,000 140,000 60,000 40% 24,000
Building 350,000 200,000 150,000 40% 60,000
Accounts Payable 70,000 70,000 0 40% 0
Total new deferred tax $210,000 $84,000
liability
Total Assets: 80,000+100,000+140,000+240,000 = 560,000
Total Liabilities: 70,000 + 16,000 = 86,000
Net Assets = 560,000 – 86,000 = 474,000
Purchase price $1,200,000
Book Value of net identifiable assets 474,000
Acquisition Differential $726,000
Allocation:
Land 60,000
Building 110,000
Deferred Tax liability (68,000) 102,000
Goodwill $624,000
