Reference no: EM132589686

Company A has been dissolved and has been taken over by company B based on the terms of the transaction below.

i. Company B has issued 70,000 units of equity shares to shareholders of company A at a value of USD0.25 a share.

ii. 20,000 units of 6% preference shares of Company B have been credited as fully paid USD0.60 per share to 5% preference shares of company A

iii. Company B will settle Company A bank overdraft amounting to USD10,000 in cash to the bank.

iv. Directors' loans will be settled through the issuance of 20,000 units of Company B's equity shares, USD0.50 per share.

v. Creditors amounting to USD30,000 are settled through the issuance of equity shares worth USD0.75 for every USD1.00 owed.

vi. The 2-year outstanding priority dividend dividend of USD4,000 was settled through an 8% loan note. vii. Company A estimates that 10% of the trade receivables of USD30,000 will not be collected. viii. Assets revalued are as follows:

Land and buildings Increase in value of USD35,000

Machinery and equipment Depreciation of USD8,000

Permanent Inventory

Question 1: The purchase amount is

A. USD106,000.

B. USD76,000

C. USD62,000.

D. USD30,000

Question 2: All journal entries below are correct EXCEPT

A. Debit bank overdraft account of USD10,000 and realization and restructuring credit of USD10,000.

B. The purchase price will be credited in the realization and restructuring account and debited in the purchasing company account.

C. Accumulated losses are credited to realization and restructuring accounts

D. All asset and liability accounts will be transferred to realization and restructuring accounts.