Saratoga Ltd. was having difculty in raising nance for expansion. Kingsh Ltd. was interested in achieving economies by marketing a
Saratoga Ltd. was having difï¬culty in raising ï¬nance for expansion. Kingï¬sh Ltd. was interested in achieving economies by marketing a wider range of products.
The following shows the ï¬nancial 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 Kingï¬sh to handle marketing, purchasing, and promotion. Accordingly, Kingï¬sh sold part of its assets to Saratoga on January 1, 2013, the identiï¬able 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 satisï¬ed by the issue of 40,000 A common shares in Saratoga.
(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 Kingï¬sh under (1) and (2) in requirement A above.
(c) Show the statement of ï¬nancial 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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