Question

II. Alpha Company used debentures with a par valueof $660,000 to acquire 100% of Zeta, Inc. on January 1, 2013. On that date the fair value of the debentures issued was $644,000. The following balance sheet data were reported by Zeta at the point of the acquisition: Cash and Receivabled Inventory Land Plant & Equipment Less: Accumulated Depreciation Total Assets Historical Fair Cost Value 80,000 75,000 145,000 200,000 75,000 75,000 450,000 350,000 -170,000 580,000 700,000 50,000 Accounts Payable Common Stock Additional Paid in Capital Retained Earnings Total Liabilities & Equity 50,000 100,000 60,000 370,000 580,000 Prepare the entry to record the above transaction.

Answer 1

The journal entry is shown below:

Discount on bonds payable: Par value - Fair value
= $660,000 - $644,000
= $16,000

Loss on purchase = Fair value of Assets - Fair value of Accoun payable - Fair value of bond issued
= $716,000 - $50,000 - $660,000
= $6,000

Particulars	Debit	Credit
Cash and receivable	$75,000
Inventory	$200,000
Land	$75,000
Plant and Equipment	$350,000
Discount on bonds payable	$16,000
To Accounts payable		$50,000
To Bond Payable		$660,000
To Gain on purchase		$6,000
Being the acquisition exchange is recorded and balancing figure is credited to gain on purchase.