1) Separate balance sheet of Dawit Corporation and Zumra Company on May 31, 2019, together with current fair values of Zumra`s identifiable net assets

1) Separate balance sheet of Dawit Corporation and Zumra Company on May 31, 2019, together with current fair values of Zumra`s identifiable net assets, are follows:

Dawit Corporation and Zumra Company

Separate Balance sheet (prior to business combination)

May 31, 2019

Zumra Company

Dawit Carrying Current

Corporation Amounts Fair Values

Assets

Cash $550,000 $10,000 $10,000

Trade Accounts receivable (net) 700,000 60,000 60,000

Inventories 1,400,000 120,000 140,000

Plant assets (net) 2,850,000 610,000 690,000

Total assets $5,500,000 $800,000

Liabilities and stockholders` equity

Current liabilities $500,000 $80,000 $80,000

Long-term debt 1,000,000 400,000 440,000

Common stock, $10 par 1,500,000 100,000

Additional paid-in capital 1,200,000 40,000

Retained earnings 1,300,000 180,000

Total liabilities and stockholders` equity $5.500,000 $800,000

On May 31, 2019, Dawit acquired all 10,000 shares of Zumra’s outstanding common stock by paying $300,000 cash to Zumra’s stockholders and $50,000 cash for finder’s and legal fees relating to the business combination. There was no contingent consideration, and Zumra became a subsidiary of Dawit.

Required:

a. Prepare journal entries for Dawit Corporation to record the business combination with Zumra Company on May 31, 2019.

b. Prepare a working paper for consolidated balance sheet of Dawit Corporation and subsidiary on May 31, 2019, and the related working paper elimination (in journal entry format). Amounts in the working papers should reflect the journal entries in a. (Disregard income taxes.)


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