The condensed balance sheet of
The condensed balance sheet of Bahrain Company on December 31,2019, is shown below:
|
Bahrain Company Balance Sheet (Prior to business combination) As atDecember 31st, 2019 |
|
|
Assets |
|
|
Cash |
$ 20,000 |
|
Other current assets |
140,000 |
|
Plant assets (net) |
740,000 |
|
Total assets |
$900,000 |
|
Liabilities and stockholders’ Equity |
|
|
Current liabilities |
$ 80,000 |
|
Long- term debt |
200,000 |
|
Common stock, $2 par |
180,000 |
|
Additional paid in capital |
120,000 |
|
Retained earning |
320,000 |
|
Total liabilities and stockholder’sequity |
$900,000 |
On December 31, 2019, Manama Corporation issued 70,000 commonstock of its $6 par value per share (current fair value $10 pershare) to acquire all the net assets of Bahrain Company (exceptcash) in a business combination. The carrying amounts of Bahrainare other current assets and current liabilities were the same astheir current fair value. However, current fair values of Bahrain’splant assets and long-term debt were $920,000 and $190,000,respectively. Also, on December 31, Manama paid $50,000out-of-pocket costs in connection with the business combination, ofwhich $20,000 were finder’s, accounting, and legal fees directlyrelated to the combination, and $30,000 were costs of registeringand issuing the common stock to affect the combination.
Instruction:
Prepare journal entries for Manama Corporation to recordits merger with Bahrain Company on December 31st, 2019.(Disregard income taxes)
Answer:
|
Date |
GeneralJournal |
Debit |
Credit |
|
Dec.31, 2019 |
Plant Asset |
$920,000 |
|
|
Other Current Assets |
$140,000 |
|
|
|
Common Stock (70,000 Shares * $6Par) |
|
$420,000 |
|
|
Additional Paid in Capital (70,000Shares * (10-6) |
|
$280,000 |
|
|
Long Term Debt |
|
$190,000 |
|
|
Current Liabilities |
|
$80,000 |
|
|
Capital Reserve |
|
$90,000 |
|
|
(To record merger with BahrainCompany) |
|
|
|
|
|
|
||
|
Calculation of Net Asset Value |
|
|
|
|
Fair Value of PlantAssets |
$920,000 |
|
|
|
Plus: Other CurrentAssets |
$140,000 |
|
|
|
Less: Long Term Debt |
-$190,000 |
|
|
|
Less: CurrentLiabilities |
-$80,000 |
|
|
|
Net AssetValue |
$790,000 |
|
|
|
Less: Consideration Paid (70,000Shares * $10) |
-$700,000 |
|
|
|
CapitalReserve |
$90,000 |
|
Note – Out of pocketcost and other expenses incurred related to combination is notcapitalized and record separately.
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