Question

On July 1, 2013, two companies, Newstar Inc. and PLX Ltd., sign an agreement whereby the operations of
PLX are to be taken over by Newstar. PLX is to liquidate after the transfer is complete. The statements of financial position of the two companies on that day were as follows:
Newstar is to acquire all of the assets of PLX (except for cash). The assets of PLX are recorded at their fair values except for the following:
In exchange, the A class shareholders of PLX are to receive one 7% debenture in Newstar, redeemable on July 1, 2015, for every share held in PLX. The fair value of each debenture is $3.50. The B class shareholders of PLX are toreceive two shares in Newstar for every three shares held in PLX. The fair value of each Newstar share is $2.70. Costs to issue these shares will amount to $900.
Additionally, Newstar is to provide PLX with sufficient cash, additional to that already held, to enable PLX to pay its liabilities. The outstanding bonds are to be redeemed at a 10% premium. Annual leave entitlements of $16,200 out-standing at July 1, 2013, and expected liquidation costs of $5,000 have not been recognized by PLX. Costs to transport and install PLX’s assets at Newstar’s premises will be $1,600.
Required
(a) Prepare the acquisition analysis and journal entries in the books of Newstar to record the acquisition of PLX.
(b) Prepare the statement of financial position of Newstar immediately after the acquisition.


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  • CreatedJune 09, 2015
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