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Hellow tutor, am asking for your clarification on W3: Consolidated R/E especially in line item written “unrolled discount on deferred payment” amounting to $1,750. I do not understand how was arrived to such figure and its implication to the group. Please help me!
No need for the impassioned plea “please help me”! If you post on the ask the tutor page, we will help you!
The discounted present value of the deferred cash payment in working W2 Goodwill amounted to $30,000 having been discounted for 2 years at the cost of capital rate of 10% to take account of the time value of money
But that was at date of acquisition and, since then, time has passed – 7 months to be precise. So we need to unroll the discount because we are now 7 months closer to having to pay this $1.21 per share.
Take the $30,000, multiply by 10% (unrolling) gives $3,000 – but that’s for a full year and we need only 7 months
Take the $3,000 and divide by 12 to get a monthly figure, multiply by 7 to get a 7 month figure and effect the double entry:-
Dr Finance costs (therefore retained earnings) 1,750
Cr Deferred cash liability 1,750OK?
Hello Sir regarding this question i want to ask how does pre acuisition retained earnings come out to be $86000
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