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Homework answers / question archive / On Dec 31, 2019, Ahmed Ali issued $200,000 in debt and 20,000 new shares of its $10 par value stock to Rasha Incorporation owners in exchange for all of the outstanding shares of that company

On Dec 31, 2019, Ahmed Ali issued $200,000 in debt and 20,000 new shares of its $10 par value stock to Rasha Incorporation owners in exchange for all of the outstanding shares of that company

Accounting

On Dec 31, 2019, Ahmed Ali issued $200,000 in debt and 20,000 new shares of its $10 par value stock to Rasha Incorporation owners in exchange for all of the outstanding shares of that company. Ahmed Ali shares had a fair value of $30 per share. Prior to the combination, the financial statements for Ahmed Ali & Rasha for ending Dec 31, 2019 were as follows:

 

Rasha

Ahmed Ali

Revenue

900,000

300,000

Expenses

-660,000

-200,000

Net income

240,000

100,000

     

Retained earnings (opening)

300,000

140,000

Net income

240,000

100,000

Dividends paid

-90,000

0

Retained earnings (closing)

450,000

240,000

     

Cash

20,000

40,000

Receivables

400,000

200,000

Patented technology

900,000

450,000

Equipment

750,000

600,000

Total assets

2,070,000

1,290,000

     

Liabilities

1,000,000

500,000

Common stock

350,000

250,000

Additional paid in capital

270,000

300,000

Retained earnings

450,000

240,000

Total liabilities & equity

2,070,000

1,290,000

Ahmed Ali also paid $10,000 to a broker for arranging the transaction. In addition, Ahmed Ali paid $25,000 in stock issuance costs. Rasha Incorporation equipment was worth $820,000 and its patented technology was valued at only $920,000.

Complete the following tasks:

a. Pass journal entry of the investment in the books of Ahmed Ali?

b. Pass journal entry of the brokerage and stock issue cost in the books of Ahmed Ali

c. Calculate the Goodwill or Barging Gain?

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