Question

The condensed balance sheet of Bahrain Company on December 31, 2019, is shown below:

Bahrain Company Balance Sheet (Prior to business combination) As at December 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’s equity	$900,000

On December 31, 2019, Manama Corporation issued 70,000 common stock of its $6 par value per share (current fair value $10 per share) to acquire all the net assets of Bahrain Company (except cash) in a business combination. The carrying amounts of Bahrain are other current assets and current liabilities were the same as their current fair value. However, current fair values of Bahrain’s plant assets and long-term debt were $920,000 and $190,000, respectively. Also, on December 31, Manama paid $50,000 out-of-pocket costs in connection with the business combination, of which $20,000 were finder's, accounting, and legal fees directly related to the combination, and $30,000 were costs of registering and issuing the common stock to affect the combination.

Instruction:

Prepare journal entries for Manama Corporation to record its merger with Bahrain Company on December 31^st, 2019. (Disregard income taxes)

Answer 1

Date	General Journal	Debit	Credit
Dec.31, 2019	Plant Asset	$920,000
	Other Current Assets	$140,000
	Common Stock (70,000 Shares * $6 Par)		$420,000
	Additional Paid in Capital (70,000 Shares * (10-6)		$280,000
	Long Term Debt		$190,000
	Current Liabilities		$80,000
	Capital Reserve		$90,000
	(To record merger with Bahrain Company)
	Calculation of Net Asset Value
	Fair Value of Plant Assets	$920,000
	Plus: Other Current Assets	$140,000
	Less: Long Term Debt	-$190,000
	Less: Current Liabilities	-$80,000
	Net Asset Value	$790,000
	Less: Consideration Paid (70,000 Shares * $10)	-$700,000
	Capital Reserve	$90,000

Note – Out of pocket cost and other expenses incurred related to combination is not capitalized and record separately.

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