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On December 31, 2019, Manama Corporation issued 90,000 shares of its no-par, no-stated-value common stock (current...

On December 31, 2019, Manama Corporation issued 90,000 shares of its no-par, no-stated-value common stock (current fair value $14 a share) for 36,000 shares of the outstanding $10 par common stock of Bahrain Company. The $100,000 out-of-pocket costs of the business combination paid by Manama on December 31, 2019, were allocable as follows: 45% to finders, legal, and accounting fees directly related to the business combination: 55% to the SEC registration statement for Manama’s common stock issued in the businesses combination. There was no contingent consideration.

Immediately prior to the business combination, separate balance sheets of the constituent companies were as follows:

MANAMA CORPORATION AND BAHRAIN COMPANY

Separate Balance Sheets (prior to business combination)

December 31, 2019

                                                                                Manama                           Bahrain                                            Assets

Cash                                                                            $ 200,000                    $ 100,000

Trade accounts receivable (net)                                  400,000                          200,000

Buildings (net)                                                            600,000                          300,000

Land (net)                                                                   1,300,000                    1,000,000

                                                                                               

     Total assets                                                         $ 2,500,000                   $ 1,600,000

                                                                                               

                          Liabilities and Stockholders’ Equity

Current liabilities                                                      $ 800,000                      $ 400,000

Long-term debt                                                                                                  100,000

Common stock, no par or stated value                    1,200,000

Common stock, $10 par                                                                                     400,000

Retained earnings                                                        500,000                          700,000

                                                                                               

      Total liabilities and stockholder’s equity    $ 2,500,000                     $ 1,600,000

            


Current fair values of Bahrain’s identifiable net assets differed from their carrying amounts as follows:

Buildings

$ 250,000

Land

$ 1,300,000

Instructions:

  1. Prepare journal entries for Manama Corporation on December 31, 2017, to record the business combination with Bahrain Company. (6 marks).
  2. Prepare a working paper for consolidated balance sheet for Manama Corporation and subsidiary on December 31, 2017. (8 marks).
  3. Prepare working paper elimination, in journal entry format(omit explanation) for the consolidation balance sheet of Manama and subsidiary on December 31, 2019. (Disregard income taxes.) (3 marks).

Solutions

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