Balance Sheet (prior to business combination) December 31, 2020 Assets Inventories $250,000 Plant assets (net) 300,000 Other assets 400,000 Total assets $950,000 Liabilities & Stockholders' Equity Liabilities $350,000 Common stock, $5 par 150,000 Additional paid-in capital 250,000 Retained earnings 200,000 Total liabilities & stockholders' equity $950,000 On December 31, 2020, VIVA issued 60,000 of its $5 par (current fair value $13) common stock for all the outstanding common stock of Zain, which was then liquidated. Also, on December 31, 2020, VIVA paid $60,000 out-of-pocket costs in connection with the business combination, of which $25,000 were finder's, accounting, and legal fees directly related to the combination, and $35,000 were costs of registering and issuing the common stock to effect the combination. Current fair values of Zain 's inventories and plant assets were $260,000 and $320,000, respectively; other assets and liabilities had current fair values equal to their carrying amounts. Instructions: Prepare journal entries on December 31, 2020, for VIVA Corporation to record the business combination with Zain Company. Disregard income taxes.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Balance Sheet (prior to business combination)
December 31, 2020
Assets
Inventories $250,000
Plant assets (net) 300,000
Other assets 400,000
Total assets $950,000
Liabilities & Stockholders' Equity
Liabilities $350,000
Common stock, $5 par 150,000
Additional paid-in capital 250,000
Total liabilities & stockholders' equity $950,000
On December 31, 2020, VIVA issued 60,000 of its $5 par (current fair value $13) common stock for all the outstanding common stock of Zain, which was then liquidated. Also, on December 31, 2020, VIVA paid $60,000 out-of-pocket costs in connection with the business combination, of which $25,000 were finder's, accounting, and legal fees directly related to the combination, and $35,000 were costs of registering and issuing the common stock to effect the combination. Current fair values of Zain 's inventories and plant assets were $260,000 and $320,000, respectively; other assets and liabilities had current fair values equal to their carrying amounts.
Instructions:
Prepare
Step by step
Solved in 3 steps with 1 images
