G Company is considering the takeover of K Company whereby

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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.

Solvency
Solvency means the ability of a business to fulfill its non-current financial liabilities. Often you have heard that the company X went insolvent, this means that the company X is no longer able to settle its noncurrent financial... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...