Exercise 9.6 LIQUIDATION OF THE ACQUIREE
Prepare the journal entries to liquidate Daydream Ltd.
HAMILTON LTD ‘ DAYDREAM LTD
Journal entries: Daydream Ltd
Liquidation Dr 1 000
Liquidation costs payable Cr 1 000
(Costs of liquidation)
Liquidation costs payable Dr 1 000
Cash Cr 1 000
(Payment of costs)
Liquidation account Dr 399 000
Cash Cr 9 000
Accounts receivable Cr 20 000
Land Cr 80 000
Plant Cr 240 000
Vehicles Cr 50 000
(Transfer of assets sold to liquidation account)
Accounts payable Dr 40 000
Loans Dr 60 000
Liquidation Cr 100 000
(Liabilities assumed by acquirer transferred
to liquidation account)
Retained earnings Dr 60 000
General reserve Dr 40 000
Liquidation Cr 100 000
(Transfer of reserves to liquidation account)
Shares in Hamilton Ltd Dr 280 000
Cash Dr 50 000
Liquidation Cr 330 000
(Consideration received)
Liquidation Dr 130 000
Shareholders distribution Cr 130 000
(Transfer of balance of liquidation account)
Share capital Dr 200 000
Shareholders distribution Cr 200 000
(Transfer of share capital to
shareholders distribution)
Shareholders distribution Dr 330 000
Shares in Hamilton Ltd Cr 280 000
Cash Cr 50 000
(Payment of consideration to shareholders)
So the question I have is, I dont understand what the liquidation account is in the journals? is it Liability, Owners equity or revenue? whys does it go up or down in debit or credit ? what effects of the assets and liabilities going into the account? So overall if you could give me a step by step explanation of these journals and what is happening, specifically the liquidation ones thats what Im after ?
Thanks,
below is the question this originally came from :
Exercise 9.6 LIQUIDATION OF THE ACQUIREE
*
Hamilton Ltd acquired all the assets and liabilities of Daydream Ltd, giving in exchange 100 000 shares, these having a fair value of $2.80 per share, and $50 000 cash.
At the acquisition date, the statement of financial position of Daydream Ltd was as follows:
|
Cash |
$ 10 000 |
|
Accounts receivable |
20 000 |
|
Land |
80 000 |
|
Plant |
240 000 |
|
Vehicles |
50 000 |
|
$400 000 |
|
|
Accounts payable |
$ 40 000 |
|
Loans |
60 000 |
|
$100 000 |
|
|
Share capital |
$200 000 |
|
General reserve |
40 000 |
|
Retained earnings |
60 000 |
|
$300 000 |
Costs of liquidation amounted to $1000.
Required
Prepare the journal entries to liquidate Daydream Ltd.