Shareholders' equity:
Common shares
Class A voting $ 1,000,000
Retained earnings 3,700,000 4,700,000
Total liabilities and share equity $ 8,900,000.The acquisition was financed mainly by debt; $4,500,000 was borrowed by Simpson Ltd. from the Western Bank of British Columbia, secured by the assets of both Simpson Ltd. and Ong Inc. The bank has requested audited financial statements of both companies on an annual basis, supplemented by unaudited quarterly statements.Ong Inc. owns the buildings in which some of its stores are located, but most are leased. None of the land is owned. The buildings are being amortized over 30 years. John has obtained two separate appraisals of the owned buildings; one appraisal firm has placed the aggregate current value at $9,500,000, while the second firm arrived at a value of $8,400,000. Ong Inc. owns all of the equipment in its stores; the equipment is being amortized over 10 years, and is, on average, 40% amortized. It would cost $3,300,000 to replace the existing equipment with new equipment of similar capacity. Inventories are generally worth their book value, except that the replacement cost of the stock of imported Belgian chocolate in the Vancouver warehouse is $20,000 less than book value because of the strengthening Canadian dollar. On the other hand, the accounts payable shown in Exhibit B includes an unrealized gain of $10,000 because much of the liability is denominated in Belgian francs.
Required:
Determine, on a line-by-line basis, the impact on Simpson Ltd.'s consolidated assets and liabilities as a result of the acquisition, in accordance with Ted Simpson's objectives in acquiring Ong. Where alternative values could be used, explain the reasons for your selection.