the balance sheets of e ltd and j ltd on december 30 year 6 were as follows on decem 4374996

The balance sheets of E Ltd. and J Ltd. on December 30, Year 6, were as follows: On December 31, Year 6, E Ltd. issued 350 shares, with a fair value of $40 each, for 70% of the outstanding shares of J Ltd. Costs involved in the acquisition, paid in cash, were as follows: Costs of arranging the acquisition ….. $2,500 Costs of issuing shares ……… 1,600 $4,100 The carrying amounts of J Ltd.’s net assets were equal to fair values on this date except for the following: Fair value Plant assets ….. $65,000 Long-term debt …. 40,000 E Ltd. was identified as the acquirer in the combination. Required: (a) Prepare the consolidated balance sheet of E Ltd. on December 31, Year 6, under each of the following: (i) Proprietary theory (ii) Parent company theory (iii) Parent company extension theory (iv) Entity theory (b) Calculate the current ratio and debt-to-equity ratio for E Ltd. under the four different theories. Explain which theory shows the strongest liquidity and sol vency position and which method best reflects the true financial condition of the company. View Solution:
The balance sheets of E Ltd and J Ltd on

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