G Company is considering the takeover of K Company whereby it will issue 7,400 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 13,000 shares outstanding, which were trading at $8.00 per share. The following information has been assembled:

(a) Prepare G Company's consolidated balance sheet immediately after the combination using the direct method and using

(i) The acquisition method, and

(ii) The new-entity 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.

(c) Prepare G Company's consolidated balance sheet immediately after the combination using the worksheet approach and using the acquisition method.

Transcribed Image Text:

К Сотрапy G Company Fair Value Carrying Amount Carrying Amount Fair Value $ 24,000 $54,500 $ 47,000 $16,200 Current assets Plant assets (net) 84,000 39,000 74,000 34,000 $ 58,000 $ 6,400 $121,000 Current liabilities $ 21,400 21,400 6,400 Long-term debt Common shares Retained earnings 22,000 26,000 3,900 24,000 4,600 44,000 33,600 $121,000 23,700 $ 58,000