Question

On 1 July 2019, Quick Buck Ltd took control of the assets and liabilities of Eldorado Ltd. Quick Buck Ltd issued 80,000 shares having a fair value of $2.40 per share in exchange for the net assets of Eldorado Ltd. The costs of issuing the shares by Quick Buck Ltd cost $1,600. At this date the statement of financial position of Eldorado Ltd was as follows: Carrying amount Fair value Machinery $40,000 $67,000 Fixtures & fittings 60,000 68,000 Vehicles 35,000 35,000 Current assets 10,000 12,000 Current liabilities (16,000) (18,000) Total net assets $129,000 Share capital (80,000 shares at $1.00 per share) $80,000 General reserve 20,000 Retained earnings 29,000 Total equity $129,000 Required: Prepare the journal entries in the records of Quick Buck Ltd at 1 July 2019 for the acquisition. (10 marks)

Answer 1

Answer and Explanation:

The journal entries are shown below:

1. On July 1 2019

Machinery Dr $67,000  

Fixture & Fittings Dr $68,000  

Vehicles Dr $35,000  

Current assets Dr $12,000  

Goodwill Dr $28,000  

          To Current liabilities      $18,000

          To Share Capital (80,000 × $1 ) $80,000

         To Paid in capital in excess of par 112,000  {80,000 × ($2.40 - $1)}  

(Being the acquisition is recorded)

For recording this we debited all assets as it increased the values of assets and credited the liabilities and stockholder equity as it also increased

2. On July 1 2019

Paid in capital in excess of par    $1,600  

           To Cash         $1,600

(Being the share issuance cost is recorded)

For recording this we debited the paid in capital as it reduced the stockholder equity and credited the cash as it reduced the assets  

Working notes:

For goodwill amount

= Purchase consideration - net identifiable assets

= $192,000 - $164,000

= $28,000

The net identifiable asset come from

= $67,000 + $68,000 + $35,000 + $12,000 - $18,000

= $164,000