Question

In: Accounting

Assets: Thompson Inc. Panna Corporation Carrying Amount Carrying Amount Fair value Cash $400,000 $10,000 $10,000 Accounts...

Assets:

Thompson Inc.

Panna Corporation

Carrying Amount

Carrying Amount

Fair value

Cash

$400,000

$10,000

$10,000

Accounts receivable

80,000

25,000

22,000

Inventory

100,000

70,000

75,000

Plant

500,000

165,000

175,000

Patents

100,000

25,000

25,000

Trade marks

-

-

20,000

Goodwill

120,000

10,000

10,000

Total Assets

1,300,000

305,000

Liabilities and Equity:

Current liabilities

$160,000

55,000

60,000

Long-term liabilities

100,000

65,000

60,000

Common shares (At $10 per share)

1,000,000

100,000

Retained earnings

40,000

85,000

Total liabilities and equity

1,300,000

305,000

Suppose Thompson Inc. purchased all the identifiable assets except cash and goodwill from Panna Corporation and assumed both the current liabilities and long-term liabilities by paying $ 210,000 cash on January 1, 2018.

  • Identify the form of business combination and accounting requirements.
  • Journal entry/entries required in the book of Thompson Corporation.
  • Balance sheet of Thompson Inc. on January 1, 2018 after this purchase.

Solutions

Expert Solution

1. In an amalgamation, two or more companies are taken over by the other company or combined into one by merger. The purpose of amalgamation of companies is to secure various advantages such as economies of large scale, reduce competition, expansion etc.

In case of amalgamation of companies, assets and liabilities of transferor company(s) are transferred to transferee company at and if consideration paid exceeds the net identifiable assets of transferor company then difference need to be transferred to Goodwill otherwise it should be transferred to capital reserve account.

2.

3.


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