Question

G Company is considering the takeover of K Company whereby it will issue 6,000 common shares for all of the outstanding shares of K Company. K Company will become a wholly owned subsidiary of G Company. Prior to the acquisition, G Company had 20,000 shares outstanding, which were trading at $4.90 per share. The following information has been assembled:
Required:
(a) Prepare G Company's consolidated balance sheet immediately after the combination using
(i) The new-entity method, and
(ii) The acquisition method.
(b) Calculate the current ratio and debt-to-equity ratio for G Company under both methods. Explain which method shows the strongest liquidity and solvency position and which method best reflects the true financial condition of the company.


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  • CreatedJune 08, 2015
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