
Business combination:
A business combination refers tothe combining of one or more business organizations in a single entity. Business combinations leadto the formation of combined financial statements. After business combination, the entities having separate control mergeinto one having control over all the assets and liabilities. Merging and acquisition are two types of business combinations.
Consolidated financial statements:
Consolidated financial statements refer to the combined financial statements of entities which are prepared at year-end. Prepared when one organization is either acquired by the other entity or two organizations merged to form a new entity, consolidated financial statements serve the purpose of both the entities about financial information.
Value analysis:
Value analysis in a business combination is an essential part of determining the worth of the acquired entity. This type of analysis helps compute
:
Prepare all entries for the sale of the Company B shares on July 1, 2018 for each of the following situations:
1. 24,000 shares are sold for $890,000.
2. 12,000 shares are sold for $455,000.
3. 6,000 shares are sold for $232,500.

Explanation of Solution
1.
Prepare all entries for the sale of the Company B shares on July 1, 2018 when 24,000 shares are sold for $890,000:
Date | Accounts Title and Explanation | Post Ref. | Debit ($) | Credit ($) |
12,000 | ||||
Investment in Company B | 12,000 | |||
(Being investment in Company B recorded) | ||||
Date | Accounts Title and Explanation | Post Ref. | Debit ($) | Credit ($) |
Investment in Company B
| 26,000 | |||
Investment income | 26,000 | |||
(being the current year investment recorded) | ||||
Date | Accounts Title and Explanation | Post Ref. | Debit ($) | Credit ($) |
Cash | 890,000 | |||
Investment in Company B | 878,000 | |||
Gain on sale of subsidiary | 12,000 | |||
(being the gain on sale recorded) |
Table: (1)
Working note:
2.
Prepare all entries for the sale of the Company B shares on July 1, 2018 when 12,000 shares are sold for $455,000:
Date | Accounts Title and Explanation | Post Ref. | Debit ($) | Credit ($) |
Retained earnings | 12,000 | |||
Investment in Company B | 12,000 | |||
(Being investment in Company B recorded) | ||||
Date | Accounts Title and Explanation | Post Ref. | Debit ($) | Credit ($) |
Investment in Company B | 12,000 | |||
Investment income | 12,000 | |||
(being the current year investment recorded) | ||||
Date | Accounts Title and Explanation | Post Ref. | Debit ($) | Credit ($) |
Cash | 455,000 | |||
Investment in Company B | 439,000 | |||
Gain on sale of subsidiary | 16,000 | |||
(being the gain on sale recorded) |
Table: (2)
Working note:
3.
Prepare all entries for the sale of the Company B shares on July 1, 2018 when 6,000 shares are sold for $232,500:
Date | Accounts Title and Explanation | Post Ref. | Debit ($) | Credit ($) |
Retained earnings | 3,000 | |||
Investment in Company B | 3,000 | |||
(Being investment in Company B recorded) | ||||
Date | Accounts Title and Explanation | Post Ref. | Debit ($) | Credit ($) |
Investment in Company B | 6,000 | |||
Investment income | 6,000 | |||
(being the current year investment recorded) | ||||
Date | Accounts Title and Explanation | Post Ref. | Debit ($) | Credit ($) |
Cash | 232,500 | |||
Investment in Company B | 219,500 | |||
Paid-in-capital in excess of par | 13,000 | |||
(being the gain on sale recorded) |
Working note:
Investment income:
Retained earnings:
Want to see more full solutions like this?
Chapter 7 Solutions
Advanced Accounting
- Expert need your helparrow_forwardMercury Corp. has no debt outstanding and a total market value of $350,000. Earnings before interest and taxes (EBIT) are projected to be $60,000 if economic conditions are normal. If there is a strong expansion in the economy, then EBIT will be 22% higher. If there is a recession, then EBIT will be 28% lower. The company is considering a $180,000 debt issue with an interest rate of 7%. The proceeds will be used to repurchase shares of stock. There are currently 9,000 shares outstanding. Ignore taxes for questions a) and b). Assume the company has a market-to-book ratio of 1.0 and the stock price remains constant. Required: Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued.arrow_forwardSolve with explanation and accounting questionarrow_forward
- Question: Naina Inc's contribution margin ratio is 64% and its fixed monthly expenses are $44,500. Assuming that the fixed monthly expenses do not change, what is the best estimate of the company's net operating income in a month when sales are $131,000? Help me with thisarrow_forwardAccurate Answerarrow_forwardFinancial Accounting Question need helparrow_forward
- Financial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage LearningCornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningIntermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning


