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Required: Prepare the journal entries to recoru the Busilness ComUIna of ABC Ltd. in the records

Required: Prepare the journal entries to recoru the Busilness ComUIna of ABC Ltd. in the records

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Business Combination

Chapter 2. Business Combinations 1. DEF Ltd has difficulty in raising finance for expansion. ABC Ltd is interested in achieving economies by marketing a wider range of products. The following shows the financial positions of the companies at 30 September 20*5. АВC Ltd DEF Ltd $ $ 36,000 104,100 Cash 400,000 Accounts receivable 75,000 82,800 300,000 Inventory 6,500 Land 250,000 180,000 164,000 75,000 90,000 Buildings (net) Plant and equipment (net) 138,000 6,000 756,900 Goodwill Accounts payable Mortgage loan 1,150,500 168,000 150,000 130,500 120,000 150,000 Debentures 300,000 Share capital-100,000 shares - 60,000 shares 300,000 180,000 Other reserves 85,500 80,400 Retained earnings 147,000 96,000 1,150,500 756,900 It is agreed that ABC Ltd will take over the operations of DEF Ltd on 1 October 20*5, and DEF Ltd is to liquidate after the transfer is complete. ABC Ltd is to acquire all the assets, except cash, of DEF Ltd. The assets of DEF Ltd are all recorded at fair value except: Fair value Inventory 117,000 390,000 120,000 Land Buildings(net) In exchange, shareholders of DEF Ltd are to receive two fully paid shares in ABC Ltd for every three shares held in DEF Ltd. The fair value of each ABC Ltd share is $9.60. Costs of issuing the shares were $3,600. Additionally, ABC Ltd is to provide sufficient extra cash to allow DEF Ltd to repay all of its outstanding debts and its liquidation costs of $7,200. The outstanding debentures are to be redeemed at a 5% premium. An investigation by the liquidator of DEF Ltd reveals that at 30 September 20*5, accounts payable of $4,800 and mortgage interest of $12,000 were outstanding but had not been recorded. Required: Prepare the journal entries to record the business combination in the records of ABC Ltd.
Transcribed Image Text:Chapter 2. Business Combinations 1. DEF Ltd has difficulty in raising finance for expansion. ABC Ltd is interested in achieving economies by marketing a wider range of products. The following shows the financial positions of the companies at 30 September 20*5. АВC Ltd DEF Ltd $ $ 36,000 104,100 Cash 400,000 Accounts receivable 75,000 82,800 300,000 Inventory 6,500 Land 250,000 180,000 164,000 75,000 90,000 Buildings (net) Plant and equipment (net) 138,000 6,000 756,900 Goodwill Accounts payable Mortgage loan 1,150,500 168,000 150,000 130,500 120,000 150,000 Debentures 300,000 Share capital-100,000 shares - 60,000 shares 300,000 180,000 Other reserves 85,500 80,400 Retained earnings 147,000 96,000 1,150,500 756,900 It is agreed that ABC Ltd will take over the operations of DEF Ltd on 1 October 20*5, and DEF Ltd is to liquidate after the transfer is complete. ABC Ltd is to acquire all the assets, except cash, of DEF Ltd. The assets of DEF Ltd are all recorded at fair value except: Fair value Inventory 117,000 390,000 120,000 Land Buildings(net) In exchange, shareholders of DEF Ltd are to receive two fully paid shares in ABC Ltd for every three shares held in DEF Ltd. The fair value of each ABC Ltd share is $9.60. Costs of issuing the shares were $3,600. Additionally, ABC Ltd is to provide sufficient extra cash to allow DEF Ltd to repay all of its outstanding debts and its liquidation costs of $7,200. The outstanding debentures are to be redeemed at a 5% premium. An investigation by the liquidator of DEF Ltd reveals that at 30 September 20*5, accounts payable of $4,800 and mortgage interest of $12,000 were outstanding but had not been recorded. Required: Prepare the journal entries to record the business combination in the records of ABC Ltd.
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