Question

Saratoga Ltd. was having difficulty in raising finance for expansion. Kingfish Ltd. was interested in achieving economies by marketing a wider range of products.
The following shows the financial positions of the companies at December 31, 2012.
It was agreed that it would be mutually advantageous for Saratoga to specialize in manufacturing, and for Kingfish to handle marketing, purchasing, and promotion. Accordingly, Kingfish sold part of its assets to Saratoga on January 1, 2013, the identifiable assets acquired having the following fair values:
Inventory, ................ $22,000 (cost $15,000)
Land and buildings, ........... $34,000 (carrying amount $10,000)
Plant and machinery, $27,000 (cost $38,000, accumulated depreciation $18,000)
The acquisition was satisfied by the issue of 40,000 A common shares in Saratoga.
Required
(a) Show the journal entries to record the above transactions in the records of Saratoga:
(1) If the fair value of the A common shares of Saratoga was $2 per share
(2) If the fair value of the A common shares of Saratoga was $2.20 per share. (Assume the assets acquired constitute a business entity.)
(b) Show the journal entries in the records of Kingfish under (1) and (2) in requirement A above.
(c) Show the statement of financial position of Saratoga after the transactions, assuming the fair value of Saratoga’s A common shares was $2.20 per share.


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  • CreatedJune 09, 2015
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