Assume that Big Company decides to acquire 100% Little Company for $500,000. Prepare the appropriate journal entries.
Question:
Assume that Big Company decides to acquire 100% Little Company for $500,000. Prepare the appropriate journal entries.
Big Company Balance Sheet | |
Assets, Liabilities & Equities | Book Value |
Cash | $2,100,000 |
AR | $10,000 |
Inventory | $200,000 |
Land | $40,000 |
PP&E | $400,000 |
Accumulated Depreciation | -$150,000 |
Patent | $0 |
Total Assets | $2,600,000 |
AP | $100,000 |
Common Stock ($10 par) | $450,000 |
Additional Paid In Capital | $600,000 |
Retained Earnings | $1,450,000 |
Total Liabilities & Equity | $2,600,000 |
Little Company Balance Sheet | |
Assets, Liabilities & Equities | Book Value |
Cash | $35,000 |
AR | $10,000 |
Inventory | $65,000 |
Land | $40,000 |
PP&E | $400,000 |
Accumulated Depreciation | -$150,000 |
Patent | $0 |
Total Assets | $400,000 |
AP | $100,000 |
Common Stock | $100,000 |
Additional Paid In Capital | $50,000 |
Retained Earnings | $150,000 |
Total Liabilities & Equity | $400,000 |
| |
Requirements:
1. Prepare the journal entries for acquiring 100% of the net assets of little, accounting for it as a merger.
2. Which accounting method is most appropriate for representing an investment of this type?
3. Prepare the journal entries for a 100% of Little Company, accounting for it using the equity method
4. Prepare the journal entries for a 100% Acquisition by issuing 10,000 shares of Big Company Stock
5. Prepare Elimination Entries for Stock Acquisition
Fundamental accounting principle
ISBN: 978-0078025587
21st edition
Authors: John J. Wild, Ken W. Shaw, Barbara Chiappetta