Question

This partnership was approached by a corporation that would like to acquire them by a stock acquisition. The partnership has no authorized stock, and the corporation does not want to pay cash for the partnership. The partnership is valued at $4,000,000 today. Reading the partnership agreement, you find that the partnership can be terminated at any time with the consent of the partners. They do not want to dissolve the partnership. The corporation very much wants to purchase the partnership.
a) In your expansive knowledge of accounting, what would you suggest the partnership do, as well as the corporation to make this consolidation happen? b) The only solution involves consolidating the partnership and the corporation. How would you, the accountant, resolve this issue?

Answer 1

Answer:a The corporation can make a public issue of shares to obtain capital to make the purchase. ( B) The accountant will open a temporary account called the business purchase account and the vendor account to record the purchase

Explanation:

a. When a corporation want to purchase a existing business ,the purchase price may be paid either totally in cash or partly in cash and partly in shares or in some cases totally in shares. The method of payment is arranged between the corporation and the existing business. If the company makes a public issue of shares to raise funds for the purpose of acquisition of the business. A statement in the prospectus to issue the shares that the vendor will be paid either totally or partly in shares boost the investors confidence in the business because they see it as a sign that the vendor has faith in the future prospect of the business under the new ownership. The shares allotted as consideration for the purchase becomes part of the issued capital of the company.

b. The temporary account and the vendor account would include the following

1.Dr the business purchase account

Cr the vendor account

With the agreed purchase price,and the allotment of shares or debenture as part of the purchase price

2. Dr the asset, including Goodwill if any to their respective account,

Cr the total value of asset taken over in one amount to the business purchase account

3. Dr the total value of liabilities taken over in one amount to the business purchase account

Cr the liabilities to their respective account

4. Dr vendor account

Cr the corporation capital account both with the purchase price when paid