Question

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 1

Answer for above two questions is as follows.

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