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General Accounting Discussions: Entries to book company acquisition

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  1.  
    • CommentAuthorlengscard
    • CommentTimeJun 8th 2007
     
    I need to know what entries to make to book the ff scenario:

    Corp A w/ 2 shareholders and is authorized to issue 100,000 shares of which 10,000 were issued to individual shareholders. Corp B bought Corp A including the ff:
    a) All tangible personal property, furnishings, fixtures, equipments, machinery, parts, accessories, inventory, A/R, etc
    b) Leased property (clinic) w/c was assigned to Corp B

    Corp B bought Corp A for $504,000. Upon closing, Corp B paid $120,000 and the balance in installment. Promissory note is secured by the A/R of the business prior to the closing date, payable to the Shareholders, will have periodic payments including Principal & Interest of $20,000 @ month for 20 months including 5% interest beginning 07/01.
  2.  
    I hope this is a clearer picture. I assume that :

    Corp B offered $504,000 to buy the 10,000 shares issued by Corp A. This was accepted by the shareholders. On settlement Corp B paid $120,000 to the shareholders of A: CR Asset:cash $120,000, CR ($540,000 - $120,000) Liability and DB $540,000 Equity:(Shares issued).

    - There are legal issues to do with the exchange of shares in one company with that of another, so its probably a bit more complex than this, but it ends up like this I think.

    - If buying the company as per above, ie by buying all the shares, Corp B now owns not only all the assets but also all the liabilities that used to be in Corp A.

    - Legal issues pertaining to corporate law for your country are VERY relevant, and you need specialist advice on this sort of thing. Your accountant and/or lawyer needs to be involved, especially in
    - how the shares are exchanged or retired by A and issued by B, and
    - whether any special conditions relating to liabilities/risk might be able to remain pinned onto the shareholders and/or directors of A.

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