Exercise CFS$\_1-$ Business Combination: Net Assets for Cash & Stocks for Stocks

As of Dec. $31,20$X$0,$ immediately before the close of the fiscal year, the following information is

known concerning three formally separate companies.

Note that "Donald Duc Inc." owns $100$ percent of the shares of "Louise Inc." which are recorded in

its balance sheet $"$at cost$".$

Note also that of the individually identifiable net assets belonging to "Louise Inc." both book and

fair values are provided.

Uncle Scrooge Inc.

Donald Duck Inc.

Louie Inc. $($@ fair value of identifiable net assets$)$

Starting from this data, consider alternately the following three assumptions.

$($a$)$ "Uncle Scrooge Inc." buys from "Louie Inc." all the net assets that make up his entire

company by paying for them a total amount of $250,000.$ In order to obtain the necessary

cash, the buyer resorts to a bank loan.

$($b$)$ "Uncle Scrooge Inc." buys from "Donald Duck Inc." the entire package of shares in "Louie

Inc." that the latter owns. The consideration for this transaction is $1,000$ new shares of

"Uncle Scrooge Inc." with a par value of euro $100$ that are issued above par at $250.$

Required:

For each of the two hypothesis the candidate provides:

The journal entries of both the buyer and the seller.

The financial statements of both the buyer and the seller after the transaction is

finalized.