In: Accounting
1-On January 1, 2019, Ramtha Corporation acquired 75 percent of Ajman Company's common stock in exchange for Ajman‘s stocks, Ramtha issued bonds payable with the par value for $500,000 and fair value of $510,000 directly to the selling stockholders of Ajman. T that date, the fair value of the noncontrolling interest was $170,000. The two companies continued to operate as separate entities subsequent to the combination.
Immediately prior to the combination, the book values and fair values of the companies’ assets and liabilities were as follows:
Ramtha Corp. Ajman Corp.
Book Value Fair value Book value Fair value
Cash $12,000 $12,000 $ 9,000 $ 9,000
Receivables 41,000 39,000 31,000 30,000
Allowance (2,000) (1,000)
Inventory 86,000 89,000 68,000 72,000
Land 55,000 200,000 50,000 70,000
Building & Equipment 960,000 650,000 670,000 500,000
Accumulated Dep (411,000) (220,000)
Patent 40,000
Total Assets $741,000 $990,000 $607,000 $721,000
Current Payable $ 38,000 $ 38,000 $ 29,000 $29,000
Bonds Payable 200,000 210,000 100,000 100,000
Common Stock 300,000 200,000
Additional Paid In capital 100,000 130,000
Retained Earnings 103,000 148,000
Total Liabilities & Equity $741,000 $607,000
At the date of combination, Ajman owed Ramtha $6,000 Plus interest of $500 on a short-term note. Both Companies have properly recorded these amounts.
a) Record the business combination on the books of Ramtha Corporation.
b) Present in General journal form all consolidation entries needed in a worksheet to prepare a consolidated balance sheet immediately following the business combination on January 1,2019
Answer for above two questions is as follows.
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