Question

P1-5 Journal entries and balance sheet for an acquisition Ling Corporation decided to acquire all of Huang Corporation's voting common stock on January 1, 2017. The purchase price consisted of $10,000 for the registering and issuing of 10,000 shares of Ling Corporation. The market value of the issuance of these shares is $300,000. The purchase price also includes $30,000 for accounting and legal fees. However, Ling is undecided on the additional amount of cash to be paid. Balance sheet information for the companies on December 31, 2016, is summarized as follows (in thousands): Ling Book Value Huang Book Value Fair Value Fair Value $1,000 1,000 2,000 Assets Cash Receivables-net Inventories Land Buildings-net Equipment-net Total assets Equities Accounts payable Other liabilities Common stock, $10 par Other paid-in capital Retained earnings Total equities $1,000 750 1,500 1.000 2,000 1,500 $7,750 1,500 3.000 1,500 $10,000 $50 25 75 50 75 75 $350 $50 50 100 100 100 100 $500 $800 900 $50 75 $800 1.000 3.000 1.200 1.750 $7.750 $50 75 100 50 75 $350 Business Combinations 49 REQUIRED 1. Prepare journal entries and a balance sheet for Ling Corporation immediately after the acquisition if it decides to include $50,000 of cash in the purchase price. 2. Prepare journal entries and a balance sheet for Ling Corporation immediately after the acquisition if it decides to include $100,000 of cash in the purchase price.

Answer 1

Part 1
Sno.	Particular	Debit	Credit
1	Cash	50
	Receivable Net	50
	Inventory	100
	land	100
	Building	100
	Equipement	100
	Goodwill(Bal. Fig)	20
	Accounts payable		50
	Other liability		75
	Retain Earning		75
	Purchase consderation		320
				(Being Business is purchased for purchase cosideration of $280 thousand)
2	Purchase Consideration	320
	cash		20
	Equity Share Capital		100
	Security Premium Account		200	Assume FV is $10
	Calculation of the purchase consideration
	Cash Paid	50000
	Share isuue	300000
	Legal fee paid	30000
	Net consideration	320000

Balance sheet of the Ling coporation as on December 31, 2016
	Book Value	Fair Value
Assets
Cash	1000	1000
Receivable Net	800	1050
Inventory	1600	2100
land	1100	1600
Building	2100	3100
Equipement	1600	1600
Goodwill(Bal. Fig)	20
Total Assets	8220
Equity
Accounts payable	850	850
Other liability	1075	975
Common Stock $10 per par	3100
Other Paid up capital	1200
Retai Earning	1795
Security Premium	200
Total Equity	8220

Sno.	Particular	Debit	Credit
1	Cash	50
	Receivable Net	50
	Inventory	100
	land	100
	Building	100
	Equipement	100
	Goodwill(Bal. Fig)	70
	Accounts payable		50
	Other liability		75
	Retain Earning		75
	Purchase consderation		370
2	Purchase Consideration	370
	cash		70
	Equity Share Capital		100
	Security Premium Account		200
	Calculation of the purchase consideration
	Cash Paid	100000
	Share isuue	300000
	Legal fee paid	30000
	Net consideration	370000

	Book Value	Fair Value
Assets
Cash	1000	1000
Receivable Net	800	1050
Inventory	1600	2100
land	1100	1600
Building	2100	3100
Equipement	1600	1600
Goodwill(Bal. Fig)	20
Total Assets	8220
Equity
Accounts payable	850	850
Other liability	1075	975
Common Stock $10 per par	3100
Other Paid up capital	1200
Retai Earning	1795
Security Premium	200
Total Equity	8220