Candle Ltd acquires all the issued capital of Wick Ltd for a cash payment of $4,500,000 on 30 June 2004.The balance sheet of Wick Ltd at purchase date is: The fair value of the net assets of Wick Ltd as at 30 June 2004 is $3,800,000.What is the consolidation entry to eliminate the investment in Wick Ltd?
E) None of the given answers.

Question

Candle Ltd acquires all the issued capital of Wick Ltd for a cash payment of $4,500,000 on 30 June 2004.The balance sheet of Wick Ltd at purchase date is:  The fair value of the net assets of Wick Ltd as at 30 June 2004 is $3,800,000.What is the consolidation entry to eliminate the investment in Wick Ltd?
E) None of the given answers.

Quizplus · Accepted Answer

The consolidation entry to eliminate the investment in Wick Ltd would be to debit the investment in Wick Ltd account for $4,500,000, credit the cash account for $4,500,000, credit the capital reserve (difference between cash paid and fair value of net assets) for $700,000, and credit retained earnings for $3,800,000. Therefore, the correct option is B.

Candle Ltd Acquires All the Issued Capital of Wick Ltd