Question

On Jan 1, Salem Company acquired a controlling interest in Abdulla Company by purchasing 15,000 shares of Abdula Company's stock from a local stock broker. This was the first time that Salem Company had invested in Abdulla Co, stock. On that das San Company's stock had a par value of $1 per share and a market value of $30 per share. Abdulla company stock was selling for 23 per than Information about Abdulla Company assets and liabilities is listed below. Abdulla Co. Abdulla Co Book Values Fair Values Cash & Receivables 45,000 45.000 Inventory 65,000 75,000 70,000 40,000 Land 350.000 400,000 Buildings & Equipment (150,000) Accumulated Depreciation Patent 80,000 110,000 100,000 Current Liabilities Required: Provide the journal entry made by Salem Co to record the acquisition. ...T Arial • 3 (12pt) т" т Save Al Answers Paragraph oll answers

Answer 1

Total Value of Consideration :

15,000 shares @ $23/share : $345,000

Journal Entries in the books of Salem Company :

A) Business Purchase Entry :

Business Purchase A/c Dr $345,000

To Abdullah Company A/c $345,000

(being shares of Abdullah Company taken over)

B) Taking over of Assets by Salem Company entry :

Cash A/c Dr $45,000

Inventory A/c Dr $75,000

Land A/c Dr $70,000

Building and Equipment Dr $350,000

Patent A/c Dr $80,000

To Current Liabilities A/c $110,000

To Business Purchase A/c $345,000

To Capital Reserve A/c $165,000

(being assets of Abdullah Company taken over and profit on such acquisition booked)

C) Allotment of Shares to Abdullah Company :

Abdullah Company A/c Dr $345,000

To Common Stock A/c $11,500

To Share Premium A/c $333,500

(Being shares of Salem Company issued to Abdullah Company Shareholders)