V. Intercompany Investment (23 points) 1. In their 2005 annual report, Lenovo di
ID: 2328323 • Letter: V
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V. Intercompany Investment (23 points) 1. In their 2005 annual report, Lenovo disclosed the following. Note that the diselosure is in ong Kong dollars and you may use Hong Kong dollars in your answer Business combinations On April 30, 2005, the Group completed the acquisition of IBM's global personal computer busi Business is approximately HKS10,400 million, including cash and the Company's shares Set forth below is a preliminary allocation of the purchase price (H ("IBM PC Business"). The estimated total consideration for acquiring the IBM PC KS 000,000) Purchase consideration: - Cash 5,958 Fair value of shares issued Total purchase consideration 4.442 10,400 The major components of identifiable assets and liabilities arising from the acquisition are as follows Fair value IBM Carrying value Property, plant and equipment Brands Liabilities 627 4,735 611 (5.199) Net identifiable assets acquired (liabilities assumed) 163 2201 (4,609 a. What journal entry would Lenovo have recorded on the transaction? Please split it out into the major asset and liability categories in the above table. (7 points) b. Suppose all of the preceding facts were the same, except that they had opted to pay 4,918 in cash and 4,442 in stock (a total of 90% x 10,400-9360) for a 90% ownership interest, what journal entry would they have recorded for the acquisition? (3 points)Explanation / Answer
A) LENOVO PURCHASED 'IBM PC BUSINESS' FOR 10400 HONGKONG DOLLARS.
JOURNAL ENTRY FOR THIS EVENT
-> BUSINESS PURCHASE DEBIT 10400
LIQUIDATOR OF 'IBM PC BUSINESS ' 10400
[ BEING PURCHASE CONSIDERATION PAYABLE TO LIQUIDATOR OF IBM PC BUSINESS]
-> PROPERTY ,PLANT AND EQUIPMENT DEBIT 627 BRANDS DEBIT 4735 GOODWILL DEBIT 10237
LIABILITIES 5199 PURCHASE CONSIDERATION 10400
[BEING ASSETS AND LIABILITIES TAKENOVER AT FAIR VALUE AND THE BALANCE TRANSFERED TO GOODWILL ACCOUNT]
-> LIQUIDATOR OF IBM PC BUSINESS 10400
CASH 5958 SHARES 4442
[ BEING PUCHASED CONSIDERATION SETTLED WITH THE LIQUIDATOR OF IBM PC BUSINESS]
B) BUSINESS PURCHASE 9360
LIQUIDATOR OF IBM PC BUSINESS 9360
[ BEING PURCHASED CONSIDERATION PAYABLE TO LIQUIDATOROF IBM PC BUSINESS]
PLANT ,EQUIPMENT ,PROPERTY 627 BRANDS 4735 GOODWILL 9193
LIABILITIES 5199 PURCHASED CONSIDERATION 9360
[BEING ASSETS AND LIABILITY TAKEN OVER]
LIQUIDATOR OF IBM PC BUSINESS 9360
CASH 5958 SHARES 3402
[BEING PUCHASED CONSIDERATION SETTLED WITH LIQUIDATOR OF IBM PC BUSINESS]
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